Proof: UI benefits keep you out of work longer!

Estimated Read Time: 7 minutes

J.P. Morgan released a recent “Economic Research Global Data Watch”

In a heartbeat summary of the report, extended unemployment benefits increase unemployment by 1.5%

To support this point J.P. Morgan writes, “…All told, the maximum available duration of benefits has increased from 39 weeks before the recession to 99 weeks now.”

J.P. Morgan sees two ways that unemployment insurance increases a persons length of time unemployed.

  1. First, by softening the blow of losing a job, they allow unemployed persons to become more selective in what job offer they accept, thereby raising the average duration of unemployment and increasing the unemployment rate
  2. Second, they may en-courage people who would otherwise drop out of the labor force to be counted as jobseekers and therefore in the labor force.

J.P. Morgan admits there are many estimates about the effect of UI on increased length of unemployment but it seems most can center around this statistic, “Most estimates of this elasticity have centered on a finding that an increase of one week in the availability of benefits raises the average duration of unemployment by 0.2 week.1″

I want to help you understand this and read the most important portions of the research.  If you don’t want the hardline numbers of the data please skip to the bottom and read the Question of the Day.

For J.P. Morgan’s data to find the impact of increased benefits they had to create a baseline amount of time that unemployment generally is allowed to citizens.

To use this estimate to understand how much the unem-ployment rate has been increased by the enactment of emergency benefits, we first need a figure for how many added weeks of benefits are now available. For all states, an additional 34 weeks of benefits are now available. On top of that, another 13 weeks are available in states where the three-month average unemployment rate is above 6%, a threshold that includes over 90% of the population. So we’ll use a figure of 47 weeks of additional benefits as our baseline. (Since an additional six weeks of benefits are available in states where the three-month average unem-ployment rate is above 8.5%, and since Extended Benefits have been increased another seven weeks, our 47 weeks figure could be thought of as near a lower bound.

Using 47 Weeks as the baseline and understanding that 2 new tiers of UI have been created to increase the length of time up to 99 weeks J.P. Morgan states that 4.7 extra weeks of unemployment now exist.

Based on the widely accepted 0.2 estimate of the respon-siveness of average duration to the length of benefit avail-ability, the 47 extra weeks of benefits could be expected to increase average unemployment spells by 9.4 weeks. Since only about half of the unemployed are eligible to receive unemployment benefits (the other half generally have not met the requirements for sufficient prior employment or lost their jobs through layoffs), the total average unemploy-ment duration would be expected to increase by 4.7 weeks.

J.P. Morgan does admit that even cutting unemployment wouldn’t necessarily increase employment by 1.5% but instead only cut unemployment by 1.5%

Because some of this effect may come through sustaining higher labor force participation, the absence of these benefits would not necessarily mean that employment would be 1.5% higher, only that unem-ployment, as measured, would be 1.5% lower.

Many people wonder, “I’ve heard that productivity has increased even though the workforce has decreased and no one is hiring because 1 person does the work of 2 jobs.”

Well that isn’t necessarily true…if you think about the fact that UI is free money but it isn’t much money.  So demand is clearly down because of unemployment but those people still have a little money.  So demand has dropped but it hasn’t died.  The companies are getting order but with credit issues, monthly leases or mortgages & low confidence in the marketplace few employers are looking to hire.

J.P. Morgan points this out in their conclusion:

By increasing the funds available to be spent by the unemployed, higher benefits should stimulate aggregate demand. This logic has been advanced as one of the rationales for increasing unemploy- ment compensation. The differing supply and demand im- plications could be rationalized by higher productivity, which, from the data, is precisely what has occurred.

This it’s a very controversial topic for politicians.  It’s not a simple matter for them with this information. This brings me to the…

Question of the Day: If your representative voted against extending UI for your state, would you understand and agree with their choice or would you disagree and try to vote them out?

If you have an job search questions please ask us: Ask the Career Doctor any Question

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  1. I disagree with the notion that UI is “Free Money”. You pay into a state’s UI fund through taxes and the gov’t taxes you on the income you receive through UI.

    In the recession we’ve experienced the last couple of years, I would look at it as a slap in the face if my congressman/senator voted against extending benefits. But in a better job market, controls over UI benefits and the length a person can receive them should be tightened.

  2. I am one of the many that is receiving UI and I don’t agree it’s free money. My taxes; when I was employed, went to UI. And I also don’t fully agree that UI keeps people out of work longer. I do agree that some people do take advantage of the system; however just like a coin, there’s the other side. Those that don’t want to stay on UI forever, like me. I already have been diagnosed with depression BEFORE I became unemployed and now my depression is worse because I feel worthless BECAUSE I’m on UI. I agree with Jaime, during this time of hardship it would be an insult if a congressman or senator voted against extending benefits, but once in a better job market make changes.

  3. F#%c jpmorgan,their interest is in the stock market and the profit from the employed.The construction industry is dead.Are we going to listen to a survey done by a corporation that gives 30 million in bonuses to its CEO? Its easy to work on a survey(i.e.get payed)to assume people just want a handout.I want a job and cant find one.Take all the surveyors,fire them and refuse them unemployment.Then ask them how they feel about UI.

  4. This is in response to the jpmorgan analysis.How dare they say it’s a crutch for not wanting to work and it’s FREE money.NO, what IS free money is the money that baby bush Gave them for a BAIL OUT.That was FREE MONEY.What we are in need of is much needed help from the government that is first to jump to the aide of others in times of need,like Haiti,Chile,Iraq,and so forth .We are SUPPOSED TO BE first priority to ANY others.Just like the politrixters,they get free money ’cause if they did what they were elected to do we wouldn’t be writting these blogs,we’d have jobs,and not be on the brink of desparity while they get in bed with the money they steal from us.Now,who got and is getting free money?This is offensive and they WILL eat those same words!DON’T JUDGE US,FOR YOU ARE DOOMED.WE DIDN’T CREATE THIS MESS YOU DID.GREED IS A DEADLY SIN!

  5. Who the heck are these people that are being “selective” about job offers they accept? NO ONE that I or anyone else knows. I was laid off by JPM. They can kiss my big white behind with their biased study.

  6. I am trying to determine if dental insurance for me is really worth it. Well, it’s not similar to medical insurance, where you may have a major injury or illness, and have to go to the hospital for an extended period of time. What’s the worst thing, financially, that can happen to your teeth? And whatever that is, I’m sure your dental insurance is set up to not pay for it.

  7. The worst thing is an accident. Falling down, a car accident or something else. I am not a dentist but if your diligent with brushing & flossing you should be fine for 12 months. But you will want to get a cleaning & check up. Maybe pay out of pocket. Probably not more than $100.

  8. That is really helpful. It provided me a number of ideas and I’ll be posting them on my blog soon. I’m bookmarking your website and I’ll be back again. Thank you again!

  9. UI benefits are not free they are taxable income. They are only a fraction of the lost income that a person gets from their job. Person who really do not want to work are usually those that are supported by other means and they are far and few in between. The UI benefits can be the difference that prevents a person from being homeless. It is cheaper to keep people in their apartments than to try to find one once they are homeless.

  10. You actually make it appear so easy together with your presentation however I find this topic to be really something that I think I might never understand. It seems too complicated and very huge for me. I am having a look forward in your subsequent publish, I will try to get the grasp of it!

  11. Latar webnya uda bagus…. cuma masih perlu ada perbaikan di warna latar yang harus di tambah beberapa seni gambar untuk menarik perhatian pembaca…. Juga jangan terlalu banyak hiasan gambar dalam format kecil karena akan menggangu keindahan pembaca…. Tetap semangat !!!!^_^…. Lanjut trus…. Kembangkan terus inovasi yang bisa anda buat…. GBU

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