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Your Take: Does Unemployment Insurance Reward Laziness?
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The Huffington Post shared the thoughts of Sen. Jon Kyl (R-AZ) on unemployment this week:
Unemployment insurance “doesn’t create new jobs. In fact, if anything, continuing to pay people unemployment compensation is a disincentive for them to seek new work,”
The title of the article is a little misleading. In quotes, Kyl said that benefits dissuade people from job hunting, not that they “make people not want to get a job,” as the title states. While I didn’t hear or read about the debate, it seems like a stretch to take the quotes and twist them to match the title.
However, unemployment benefits do act as a disincentive. You get unemployment benefits when you are unemployed, you don’t get them when you are employed. If you remain unemployed, you get paid for not working… so in that respect Kyl is right. Given that base unemployment benefits lasts 26 weeks (not including the extensions from the stimulus package), I’m inclined to think that it’s not unfair for Bunning, or others, to ask how we are going to pay for these things especially if we’re extending benefits again.
While the initial 26 weeks are funded by my employer and myself, through past payments, the extensions, in theory, aren’t. They’re funded by current workers and are taken from their future benefits, should they ever need them. I’m not well versed in how it all works but that’s just my layman’s understanding of it.
If I lost my job and was on unemployment, my initial sense of urgency at finding another job would be much lower than if I didn’t have unemployment benefits (once I got over the sting of being fired). If I just need to meet the job hunting requirements to receive unemployment benefits, I’ll do that while I search for the “right” job and not the “right now” job. I would rethink my career, a la Lemonade, and not rush to find income. Without unemployment benefits, I would be less likely to do it… so in a sense the benefits act as a disincentive.
What are your thoughts on unemployment benefits and whether they reward laziness? Did you think Bunning blocking the bill because he wanted the Senate to follow its own PAYGO rules were justified?
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Jim, I was on unemployment for 5 months once. Believe me, it did not make me less interested in finding a new job. The benefit is NOT a living wage. Maybe for low wage earners it might give them breathing room but this recession has hit all income levels and as a high tech worker I can tell you that unemployment checks are no replacement for a paycheck.
I think that most of the comments for this post will echo yours because I believe most Bargaineering readers are like us, hard working people who aren’t looking to coast by. I also don’t think that unemployment rewards laziness but that it is setup as a disincentive to find work, or at least work with a “reported” income.
I really don’t get how it can be a disincentive, since (at least in Texas), you have to be actively looking for work to qualify for unemployment.
In New York they would sometimes make you show at least 3 different companies each week that you applied to with the name of the company and a contact name of someone at the company as well as their phone number. The unemployment office says that calling the company on the phone to ask if they were hiring would do. So what some people would do is just call random companies and ask if they were hiring. If they said “yes” then just hang up on them and call another that says “no”. Then tell who ever you spoke to that you are looking for work and can you use their name for the unemployment office. It didn’t even matter who you spoke to. It could be the receptionist telling you they are not hiring. How hard is it to find 3 companies a week that will tell you they are not hiring?
Hm. In Texas and California, you have to have a verified application on file. Obviously, there is a lot of differences from state to state.
True, the requirements for job seeking activities are minimal. However, to believe that proving you are looking for work when most of us are applying every day to every job that might consider are skills a good fit. No one is going to hire a lawyer to be a cashier for God’s sake!!! or a farmworker!!
Well I don’t see how unemployment insurance could make people more urgently seek a job.
But maybe i’m missing something.
Exactly and in that respect it’s a disincentive. That’s not to say it makes some, or all, people lazy but it still is a disincentive.
People may coast but Unemployment Insurance is so incredibly necessary for a healthy economy that it doesn’t matter.
EI has never been about helping people. It is not a hand out, you pay an insurance premium. It keeps a little money in peoples pockets to fuel the economy so it doesn’t tailspin out of control.
Unemployment is up to 14 percent in some states – you can’t have 14% of the work force piss poor. If that happened then so much for small business, which means so much for job growth, which means bad news for all of us with jobs.
Planet Money, an NPR podcast, had a very interesting episode (Jan 15) on Denmark. Denmark has a HUGE social safetynet for unemployement, along with 50% tax rates. This is basically a hyperized example of what the US is trying to do. The podcast talks about some of the risks of a “government guaranteed paycheck”. It is a good listen, and I highly recommend the podcast. The interviewees on the podcast say Denmark has a lot of fraud by the unemployed. They have requirement of how many job applications they need to fill out each week, but they have teachers NOT filling out teaching applications, and instead filling out applications for medical doctors or lawyers. They know they will not get the job and can collect more unemployment.
BTW, I am not knocking teachers – that is just an example.
Denmark also has problems with workers collecting unemployment and also working ‘under the table’.
If you’re going to make a living waiting tables, you might as well collect unemployment and wait tables to increase your earnings.
Where does it end? Right now some states give 99 weeks unemployment. NINETY-NINE weeks. That’s almost TWO years. On the low end, it’s 66 weeks.
Where does it end? When the additional 20 weeks Congress just caved on runs out, what then? Another 20, why stop there?
Great point Ron.
Huh? I live in a state that doesn’t have unemployment extensions, and they provide 26 weeks of unemployment insurance payments. That’s the standard.
Ha…that’s a joke! Most states have a maximum benefit of maybe $200-250 a week. I don’t think an income of $12,000/year is going to be much of a disincentive.
Only a few states offer a high enough benefit to accomplish what Sen. Kyl thinks is happening. Pennsylvania is one, and I think maybe MA is another.
Just to try arguing from another angle–I thought your comments that having some amount of income (and yes, unemployment benefits are not nearly enough to replace lost income) might encourage some workers to take more time to find a job that is a good fit were right on. I’m wondering if the collective whole of society wouldn’t be better off if each individual held jobs that best utilized his/her skills and talents? If you open a small business, that will benefit your town and your tax base, plus you won’t be filling a lower-level job that you are over-qualified for and prevent someone else (say, a new graduate) from taking it. So perhaps the some of the money lost in disincentives to work is gained in subsidizing wise career transitions.
Fifty years ago unemployment insurance worked the way it was intended. Each week you visited the Employment Office, filled out forms stating where you had looked for work during the past week and what you were told, reported any income during that time and then signed your statement. The visited job sites reported on your statement were checked at random and your benefits could be stopped immediately if your statement was found to be false.
Our world is a much busier, more complex, and more densely populated place now and the original transparency of intent is no longer efficient or even possible. For those who use the system as it was intended… to help tide them over while they find a new job… it is invaluable and a godsend. For those who cheat the system with nothing more than a phone call or a mouse click, and are not even looking for gainful employment, shame on you… you discredit our country.
I typed in Well Said and was told that my message is too short. So like government work, I have to look like I am doing more when in fact I am not.
Hopefully this will now work.
Bill Snider
That sounds better!
This was my experience as an HR Specialist here in Alaska. We had a gentleman who came in with his unemployment forms and to have them signed off by the Director of HR that he had applied for a job.
Very well said. Transparency of intent is increasingly more diluted.
Jim, I personally know of an older gentlemen who was ‘laid off’ of work right when he really intended to retire anyway. He took unemployment benefits for the full 6 months, supposedly ‘looking’ for a job (he wasn’t). When the 6 months were up, he just retired on a substantial base of assets and social security.
His thinking: He held a job for 45 years and never took any unemployment benefits, yet his employer has been paying them for him the whole time. This was his opportunity to ‘get his piece of the pie’ as a reward for staying employed for so long.
Do I agree with it? No… But do I understand the sentiment? Absolutely. Sometimes to the person who works hard and keeps a job their whole life, unemployment benefits seem like a handout.
This also happened to a friend of mine. He knows it is an abuse of the system. He would be a fool to turn it down.
Bill Snider
But would you not call this the exception to the norm?
And should we then say that if you are laid off in time for retirement, should not retirement kick in and not unemployment?
I also know someone who did the same thing. They were moving, but she got wind that her office was closing so after her family moved, she stayed for another 4 months until the office closed. Because they let her go she got full unemployment benefits. Some people didnt agree with it, but I guess in my situation I didnt really care. I guess its like getting all of your tax money back for the past how ever many years.
I think it depends what you’re trying to get out of life.
For some people, getting paid to not work sounds like a pretty sweet deal. Basically, your hourly wage is infinite! For these people, the extensions are a nice gravy train. This can be especially true if employment would necessitate incurring day care costs.
But for most people, I think it serves as a safety net.
Intrestingly, unemployment is not funded the same in each state. You mention that in your state, it is funded by your employer and you (via FUTA). In other states (such as mine) it is funded by just the employer.
It’s like the government wants employers to hire people, but they also force them to pay the unemployed.
So… bleed 0.5X of a salary or bleed 1.5X of a salary when you’re hurting as is and there’s not enough work…
Just coming from an employer’s perspective as my company had a few layoffs to “maximize core efficiency and potential”.
Years ago, my brother was laid off from a factory job that he had held for about 20 years. I forget the exact details, but I think because of NAFTA, the employer paid for some schooling and he received unemployment benefits while in school.
He got training as a computer specialist and now runs a successful computer repair business out of his home. Getting laid off was probably the best thing that happened to him.
It is amazing how a layoff can spark people. Some people are too afraid to take that leap to do something like go back to school or start a business. When you get laid off you have no other choice, you have to make a decision and its actually worked out very well for the people I know of. Obviously no one wants to loose their job, but it can be a blessing in disguise.
I could see it as a disincentive to find a job because if you get any paycheck (even if you go from a 100k tech job to flipping burgers) you lose your unemployment check (or most of it). So it could be considered a disincentive to be underemployed.
I agree with cubiclegeoff. I was on unemployment several years ago, and made only $100 less a week than at my former job. It made no financial sense to find even part-time work, because I would work 0 hours a week for $X, or I could work 40 hours part-time for the same amount. I finally took a temp job just to get out of the house, but I didn’t make that much more than on unemployment and I was a lot more miserable!
So, while I think most can agree that unemployment carries a disincentive to find work (with varying effect), it would seem that the example that you have cited here would lead those on it to not have to settle for the first job that comes around (flipping burgers) and, instead, allow them to find a truly meaningful job, perhaps in the industry that they are trained, have a better chance of being fully employed, and make a greater contribution to the economy.
Sounds good to me.
And again, while there are plenty of people that don’t abuse unemployment, I agree that it IS a disincentive. All you have to do is look a the scenario a little differently… I mean, wouldn’t you look harder if there wasn’t any unemployment insurance?
I just want to underscore, though, that there are plenty of good reasons to have it. That just because it has a disincentive inherently built into it, that doesn’t mean it’s a bad thing.
Its probably more of a disincentive for people who are making a salary around what the unemployment benefit caps out at. They get paid a benefit that is pretty close to their old salary for doing nothing. Now in my situation, if I got laid off, my benefit would be nothing like my salary so I would be more incentiveised ?sp? to get back to work ASAP!
I know someone who has worked more than two years while in school. Same person is now trying to get fired to get the unemployment. How do I know this? She works for me and have caught her lying few times. Explanation: I forgot, I did not do it etc. She was wonderful in the begining, now she has gotten comfortable in her position and I cannot be in the office all day.
If I let her go, she will collect unemployment for extended time period (and she will graduate meanwhile), If I keep her, I am losing money.
There are always some bad apples. Bottomline, if you cheat, shame on you. If you are honest, hats off for trying to hang on and good luck
My friend was trying to do the same thing- get fired so she could focus on school. There had been a lot of layoffs in her department, and the end seemed inevitable, so she was just trying to get to the front of the line. I don’t think it’s cheating, you have to look out for yourself first and foremost.
But was she trying to get fired in order to colelct unemployment, like the first example? If so, that IS cheating the system, because it is her intent NOT to work, and, instead, focus on studies, etc… She wouldn’t even technically qualify as being unemployed. Unless, of course, there is more to her story that you are leaving out.
If you are fired for cause, you may not be able to get unemployment. there is a system in place to challenge unemployment being filed where your prior employer can prove you did not meet job expectations. I know because my work does it for 100% of terminations (not economy related layoffs) and my friend just had to defend his.
The unemployment system is there for people who are layed-off, not for those that are bad workers and get fired for not meeting standards, not showing up, etc.
That said, i believe the unemployment program is good and reasonable but that the extensions by congress may not be. Having a safety net is reasonable, having an extended incentive to stay unemployed is not reasonable.
Agree. You should just fire them for non-performance. That is an allowable, for cause, reason for termination and would make them ineligible for unemployment. I’m pretty sure thats how it works.
If someone is fired for actual misconduct then they are NOT eligible for unemployment.
You have to have real misconduct however and they have to be terminated for cause. Dishonesty is one of the things that can qualify as misconduct. But the employer may need to justify the firing if challenged. You suspect she lied but she claims she forgot. Your suspicion that she lied isn’t really proof, and her defense of simply forgetting might easily trump your suspicions. From the sound of it you are simply making an assumption that she wants to be fired.
I had a coworker fired for misconduct (justifiably) and his unemployment was denied, he appealed and lost. But we had undeniable proof that he did what he did.
Under normal economic circumstances, extending unemployment benefits does create a disincentive to find a new job. In the US the system has generally done a good job of balancing the need for a safety net to cushion job loss and not force people into employment situations that aren’t optimal (giving people time to find a job that is a good fit for them is a net benefit to both the person, the employer and society) while not setting up a situation where there is so little incentive to find a job you create an entire class of people that would normally be willing to work but choose not too.
However, in a recession such as the one we are currently experiencing, extending benefits is the simplest and easiest form of stimulus the government can provide and it generally agreed by both conservative and liberal economists to do a good job of smoothing out the business cycle. Jobs are harder to come by thus benefits need to be extended. Forcing people into temp work (the next effect of which is to actually drive down the availability (and salaries where applicable) of temp work for people who that work is designed for) or bankruptcy doesn’t really benefit anyone, and if jobs aren’t available then they aren’t available. We have even more problems during the current recession due to general overspecialization (former employees in areas with significant job loss do not have easily transferable skills to areas where job growth exists), which can lead to systemic unemployment even when the economy corrects itself.
It would seem as if this post hits the matter more square than most these other posts. Not in our lifetime for most of us have we seen an economic situation as this. How many of you have tried to live on $385 per week? And, it is money that will obviously be spent and that is needed to at least attempt to stimulate this economy. What can you be thinking about when you talk about disincentives? The above examples of people riding the wave are few and exceptions. Hey, where are these jobs you think these people can find anyway????
From a macroecon perspective, I think that unemployment insurance does a lot better job at keeping the economy afloat than say a stimulus check. With unemployment, most of the people will use the money to buy basic goods and services while they are looking for a job. It keeps the firms providing those goods and services from having to lay off more workers, and so on. It also kicks in when people need it most. Like people have written, it may give some an incentive to be lazy, but it doesn’t last forever so you really have to look at whether the benefits outweigh the costs.
No. It is not enough money for people to live comfortably on, so there is motivation to go back to get a job and go back to work.
But there would be MORE motivation to get a job if there weren’t any unemployment. It’s not saying that it has a huge effect in every case, but there IS a disincentive.
Yes but consider how many homes would be lost given the average savings rate in the US.
I 100% agree with you Chris. Unemployment insurance is necessary.
I was just saying that, despite being a positive, it does, undeniably, provide a disincentive to finding a job, at least in the short-term.
How much of a disincentive? What effect does it have? That’s the question…. But there IS a disincentive.
And probably more incentive to steal, beg, borrow, rob, commit acts of violence and engage in illegal activities.
Thank you a voice of reason!
Unemployment will continue no matter what government is put in Washington. America has lost its manufacturing base. America will not create enough jobs if it is not manufacturing products. Almost all electronic components are made in Asia. We stopped manufacturing shoes, cloths, furniture, computers, answering telephones, and other tasks, and jobs are outsourced to other countries. Companies cannot hire workers if there is nothing to do.
@Don – the loss of manufacturing jobs has been a massive net benefit for the U.S. economy. It is ALWAYS better to shift resources to higher skilled jobs using better technologies than to simply have ‘full employment’ in low skill, low tech businesses like shoes, clothes, furniture, computers, answering telephones, and other tasks.
If you want to better understand this, look into the Solow Growth Model: http://en.wikipedia.org/wiki/Exogenous_growth_model
But your logic fails in that a lot of those “higher skilled jobs using better technologies” are being outsourced.
@Karen – If you don’t believe offshoring works, why don’t we take a hard look at outsourcing and apply that model to the offshoring argument.
San Francisco is a very high cost of living environment. Lincoln, Nebraska is a low cost of living part of the country. If I am interested in opening a low to moderate skill manufacturing plant, which city should I choose? Nebraska, correct?
Next, let’s consider if I wanted to start a technology company that builds, let’s say, personal finance web applications. Which city would I choose then? San Francisco, correct?
What’s the difference? Manufacturing has become commoditized with the only exception being the highest skilled types of products. As a result, it is necessary to seek out the lowest cost possible to produce a product that meets the minimum quality standards I need.
Technology, on the other hand, requires a higher level of skill, a creative labor force, and money to make it happen. Just outside San Francisco, we have Silicon Valley – the birthplace of many a tech company. It’s unlikely that a best tech solution will come from Lincoln and more likely that it will come from San Francisco because of the law of comparative advantage.
Silicon Valley is comparatively better at web application building than is Lincoln because there is a larger pool of better skilled workers along with deep pockets to fund good ideas. Lincoln is a comparatively better place to manufacture products because of the relatively lower cost of its labor force.
So, what about this point you make about “higher skilled jobs using better technologies being outsourced”?
Sure, there is more competition in the programming game from Eastern European countries, India, and even China. These countries have the comparative advantage of lower labor costs compared to here in the United States. However, these jobs aren’t of the higher skill levels. These jobs that are being offshored to these parts of the world are of the more mundane, less creative, less value-driven variety.
The high level programming work remains here in the United States because we continue to be at the leading edge of technology, and just like blue-collar manufacturing jobs, there are also blue-collar technology jobs. Just because a job is the in the tech field, it doesn’t make it highly skilled. Using the reverse logic, not all manufacturing jobs are blue collar either. There are many who work in manufacturing still pulling in six figures, but they’re involved in very specialized industries that build very high tech products (think aerospace and defense).
This discussion doesn’t even include the fact that consumers win by having lower cost products available which means more money can be spread around to other places – perhaps even starting a new tech company. If consumers have more money to spend, it benefits everyone in the economy.
Could you imagine how much a new outfit would cost today if we didn’t offshore? Underwear, socks, shoes, pants, belt, shirt, watch, etc. would probably cost at least as much as a custom tailored suit.
Comparative advantage is the major force at work, and if you don’t use it, have fun facing inflation and economic distress that surely follows. If you look at closed versus open economies, you’ll see a MASSIVE gap between countries that trade (including offshoring) and those that don’t.
Without quoting stats, consider closed economies like North Korea or Iran. Are they better off? Think back to the end of World War II. Why did America’s economy grow so rapidly? International trade. We manufactured goods and exported them to Europe to rebuild.
Instead of software and web apps, we were selling washers and dryers and refrigerators. These were leading technologies in the 1940s and 1950s. They’re old tech today. While software and web apps are the new tech today, the will eventually become old…just like washers and dryers or refrigerators.
I’m rambling….sorry, but it’s one of those misconceptions that really chaps my backside.
Michael, I agree on mostly everything you say here with one gripe.
Readings of Smith on division and specialization and Ricardo on comparative advantage definitely point out the advantages of free trade (whether we look at inter-state or international). Built upon Ricardo’s work is the Heckscher-Ohlin model which incorporates endowments of the factors of production in a nation.
While these are all very strong models, they are not fully accurate. One assumption they use is that capital and labor move freely and quickly across industries. In the real world this is far from accurate. Labor has different skills and capital in the form of making microprocessors can’t be easily transferred into textiles.
When an infant industry in a developing nation is exposed to free trade it cannot grow and fails. This is because they do not yet have any comparative advantage as the same industry in a foreign nation. The cost of importing that product is cheaper than creating it at home.
It is argued that under free trade the capital and labor that would have been used in that failed industry is instead transferred into more productive industries that may have a competitive advantage.
The problem with this argument is that, while true, the industries where the capital and labor are distributed into in a developing country are very low tech and low growth.
Due to this, third world countries with full free trade tend to stay with the same low growth industry and their economy stagnates because they are unable to innovate. An example is Mexico between 1985 and 1995 when it had extensively liberalized trade which then had a growth rate of .1% per year for a period following this trade liberalization.
Another issue that free trade has on a developing nation is that the IMF forces them into certain fiscal policies including reducing their budget deficits. Free trade makes revenues fall in these nations and due to the restricted budget deficits they are forces to reduce spending in education, physical infrastructure and healthcare, further reducing future growth.
Free trade theorists will state that while this may be true, the gains from trade that large nations get can “compensate” the losses from a smaller nation and still make a hefty profit. While this is true, there is no mechanism to make it actually happen, therefore it doesn’t.
Throughout the history of industrial nations, all of the large nations (US. UK, Japan, etc.) actually had protections on their industries which allowed them to grow to where they are today. Similarly, China is doing the same thing right now by forcing foreigners to share control and share industrial knowledge with China in return for use of their nation as a market or as a producer.
That ended up a little longer than I expected. Basically the conclusion is that while free trade does increase the efficiency of resources (pure free trade would bring in about $537 billion in the US and $1857 billion worldwide), those increases in profit go to a very concentrated set of producers rather than getting equally distributed. This distribution tends to favor developed industries in first world nations and severely hinder developing nations because they can’t gain a competitive advantage in any industries that will grow and provide revenues.
While free trade is good, I think protection needs to be provided in certain cases. Those being industries that have the potential to provide a good comparative advantage to their nations. Once those industries have grown enough, they should be open to free trade because it is advantages to them and their trade partners. Hell, lets not forget that even the US protects it’s own industries that get competition from the comparative advantage developing nations have.
@Michael, I wasn’t even thinking about programming, I was actually thinking about both hardware design and specifically the accompanying customer-facing documentation for those chips. Offshoring is an unsatisfying, ultimately short-term solution. And yes, I do think that writing understandable hardware documentation is a highly skilled profession.
I think your glasses are highly rose-colored.
@Edwin – great comments, and the only point that was a little odd is that Smith, et al were long run theories and not meant to be used in the very short run. As we’ve seen play out over time in South Korea, their per capita GDP was only about one-tenth of the United States following the Korean War. It has risen over the last fifty years plus to 60%+. Obviously we’ve lost some jobs over there, but we’ve also gained a lot of great electronics that we’ve imported (and they’ve bought plenty from us too). Trade is definitely good and offshoring is part of the equation.
BTW, what’s your economics background?
@Karen – my lenses are just fine although I like the reference.
I know very little about the hardware business, but would it be fair to say that hardware documentation would be completed by a technical writer with expertise in the computer hardware business? Would it also be fair to say that the writer would need to have great command of the language in which the documentation will be delivered? Would it also be a job requirement to be highly knowledgeable about the specific product in question as well as how the component interacts with other systems and components?
To your point that offshoring is an unsatisfying and ultimately short-term solution, I’d say you’re right and wrong and wrong and right. You’re right that offshoring is unsatisfying if your job is offshored. You’re wrong that it’s unsatisfying because we love our goods and services to be at a low price so we can afford to purchase ever more goods and services over time (we didn’t get to this standard of living without the use of lower cost labor, importing items we want or need, or exporting items that others want or need). You’re wrong that offshoring is short-term. It is a permanent reality that will not go away unless we have a cataclysmic worldwide event. You’re right that offshoring is a short-term solution for some industries and businesses – particularly for contract/project work.
One last point on the hardware documentation – where did it say the job had to be filled by an American?
If your hardware documentation isn’t understandable, it’s because it’s poorly written. Americans, Norwegians, Chinese, Iraqis, Australians, Egyptians, and all the rest can write shitty manuals. I wouldn’t blame it on offshoring, but in poor quality control of the production of this documentation.
It’s easy to point the finger at offshoring because it’s an easy target. How about the quality control processes and people that are supposed to supervise the creation of the documentation?
The issue with Smith and Ricardo’s theories is that they take too generic of an approach. Well let me be more clear about that, all models take a very generic approach. The real issue is that people tend to take basic models and use them as an all encompassing view of the issue (in this case free trade). They are simple so the concepts can be easily understood and tested but they leave out certain things.
There are countless examples of free trade being advantageous, and most of them are absolutely true. The only issue I bring up is that free trade is a bad policy choice for developing nations who won’t be able to create their own strong industries. There are countless reasons open trade is good, but also a a few specific cases in which it can be bad.
While I can’t comment on South Korea specifically I can say that first world nations had some form of protectionism that allowed them to build up strong industries. Britain is fairly obvious as they were the spur of the industrial revolution so they had nothing to be protected against.
As for economics background, I hold a bachelor’s degree in the subject but that’s about it.
Funny we should be discussing protectionist policies as Brazil just slapped the U.S. with some pretty hefty tariffs as a result of our continuing policy on farm subsidies. This is exactly what you’re talking about when it comes to a developing nation having the ability to protect themselves against a more developed country.
All nations will work to protect certain industries or simply their overall economy, but it must always start with some first steps. Africa remains the most impoverished continent for a variety of reasons (not least is political instability, corruption, and nasty episodes of violence), but for these nations to move out of abject poverty, they must take some first steps. Often these first steps aren’t pretty and can involve exploitation of their resources (human and natural), but economic development has to start somewhere.
I don’t think it’s a good policy for these ‘fourth’ world nations to turn down economic opportunities simply because they aren’t yet strong enough to protect themselves. You could liken these nations to newborn babies who are largely dependent on others (either through foreign aid or trade deals that are less than fair). At some point, they’ll have to be able to hold their own head up. Then they need to be able to rollover, then crawl, then walk, then run. It takes time and the process is ugly.
The problem with truly poor nations are many and varied. Instability, poor infrastructure, limited natural and human resources, non-existent or corrupt financial markets, etc. are all problems that have to be overcome, but if they haven’t been overcome on their own, why not get some help through trade?
On the models, economists are famous for oversimplification. It’s what they do, but once a model is created, it must then be analyzed in the real world using broad sets of data. In the 1990s, Andrew Warner and Jeffrey Sachs released a study that was taken from 1970 through 1989. Among developed nations, open economies grew at 2.3% per year while closed economies grew at 0.7% per year. Among developing nations, open economies grew at 4.5% per year while close economies grew at 0.7% per year. While this is just one study, there have been many others that show a positive correlation between open borders and increased growth in GDP with developing countries possessing a higher growth rate than developed countries (it’s harder for GE to grow than it is for a Silicon Valley startup).
On your background, I was just interested to see if you’re working on this issue professionally. This is issue of moving people out of poverty through economics is what I plan to work on after my kids leave the house. We’ll likely be in Latin America…somewhere…in a little more than 10 years.
If you want to help some developing nations fight poverty, consider http://www.kiva.org You can be a lender to entrepreneurs or make a straight donation to the organization.
@Michael–You said “would it be fair to say that hardware documentation would be completed by a technical writer with expertise in the computer hardware business? Would it also be fair to say that the writer would need to have great command of the language in which the documentation will be delivered? Would it also be a job requirement to be highly knowledgeable about the specific product in question as well as how the component interacts with other systems and components?” Yes, and these are some of the reasons why I think technical writing is a highy skilled activity. The only point I would differ with you is that “great command of the language” is not enough. You need native speaker proficiency. (Which is not to say that you need to be a native speaker.)
Also, you need a knowledge of technical writing concepts and methodologies. This is not a small thing.
I see offshoring of technical writing as ultimately unsatisfying and a short-term solution for several reasons. 1) A number of companies have offshored their writing and discovered that customer dissatisfaction skyrocketed. Oops! Back to the US. (Though I do agree that in general, outsourcing is a fact of life.) 2) The field of technical writing is much more developed in the US than in any other country. (At the moment–this could change.)
We may love our cheap, outsourced goods and services, but you’re not buying a whole hell of a lot without an income.
I know a gentleman that has been fighting unemployment for much of the last decade and he is a technical writer in the field of chemistry. There has been a great number of jobs lost as chemical companies have increasing moved to other countries not for the workforce, but for the lower environmental standards. This is an ugly part of globalization that can’t be addressed until there is agreement on worldwide environmental standards, but it’s a reality. It is something that the market will not self-correct anytime soon unless there is a binding legal agreement which we continue to fail to produce.
On your last point, this is exactly what I’m talking about. In order for developed countries to continue to grow (to have income to spend on cheap goods and services), there is a greater emphasis on technological innovation. As I alluded to in earlier comments, South Korea and other nations are seeing high rates of growth in per capita income, but it’s not coming at our expense on net (yes, it’s a direct expense for the person whose job was offshored in the short run). Through the process of innovation, we continue to grow our incomes by replacing the old with the new and our continuing increase in productivity proves this out.
Now, as Edwin has touched on, the distribution of that wealth from new innovation is a different matter and is a hotly debated issue in economics. It would appear that offshoring increases GDP, but the spread of that GDP isn’t the same as without offshoring. But that’s a topic for another day.
BTW, there is a trend of bringing jobs back where offshoring turned out to be a bad idea, but that’s the market at work.
Great point Michael, we both agree that either pure openness or pure protection are bad for developing nations. All or nothing is a silly way to argue proper economics and policy and it’s sad how many people do just that.
I’m trying to find that paper you referred to by Warner and Sachs, do you by chance have the title? They have done a lot of great work on how resource endowments affect developing nations but I have yet to read this paper.
Sachs, J. D. and Warner A. M., “Economic Reform and the Process of Global Integration”, Brooking Papers
on Economic Activity (1995a) 1995:volume 1, August. pp. 1-118.
Isn’t it Buddhism that teaches the ‘Middle Way’? I thing they’re on to something.
I managed to find it after you listed the title, thank you. While I may agree on a “middle way” for this specific issue, I don’t endorse it as a general philosophy for everything.
There are some issues that just don’t have a real “middle way” even though some people make them out as controversial.
I think that people are thinking about getting a job in the wrong way.
You can’t “just get a job”, and you really can’t “try harder”, at least not in this economy. When looking for a job, “motivation” is not the only factor. You can send out more and more applications, but that might not get you anywhere if there are 100 people applying for every job.
You may be able to “just get a job” when everyone is hiring and the economy is doing well, but in my town, even the fast food places have stopped hiring.
I think we have to recognize that yes, some may limp by on unemployment and not find a job. But for the vast majority of people- it is not a disincentive at all. In fact, it is shameful, sad, and anyone who can do simple math can figure out the long term effect.
I think with a lot of social service type ‘handouts’ a few bad apples are always used to try and make a politician look good. People are lazy because they are lazy, not because they get unemployment. It is a necessary part of our economy to keep people off of other social services. A slight bridge to keep people from being homeless.
What stops people from seeking under the table employement and keep this as icing on the cake?
An IRS audit?
They might not find out about the tax free income though.
I know several people doing this currently. They worked 9-5 jobs and were laid off and started collecting unemployment. They are still actively looknig for work, but also work under the table for local constractors. They are smart enought that they pay their bills with the unemployment money and they use the cash from working under the table for the day to day spending money and other “untraceable” things.
Doubtful. The IRS has little incentive to check on returns at this income level. They’d spend 40 hours of an auditor’s time trying to track everything down, only to uncover a small amount of wages. They have bigger fish to fry. (Not saying it never happens, but seems to me that the odds are minuscule).
If an employer pays “under the table” he doesn’t report those payments to the IRS.
It can be worth it to them to pay under the table because then they are off the hook for SS and Medicare tax. And they can usually pay less then the prevailing wage.
The employer is the one that usually will get busted by the IRS in this scenario, not the “employee”, because more often than not they don’t pay just one person under the table, it’s usually a whole team or more…
Unemployment insurance acts as a safety net.
Me and my employer pay into the pool and if I am laid off, I get to draw from it until I find another job.
Does it reward laziness? For some people it certainly does. There are lots of lazy people with jobs who are certainly not going to become bastions of productivity and motivation simply because they got laid off.
However…
Getting laid off in good times is a huge stressor. Getting laid off in a super-recession with 10+ % unemployment and diminishing wages will propel even the most stoic protestant into a period of “work ethic withdrawal”. Is that being lazy or being temporarily discouraged?
There is a grieving period when a job is lost and even after that it is important to give potential job seekers the time and support to find a job that is appropriate for them. UI offers that and right now, we need it extended until our economy is back in shape.
The Republican Senator should consider the cost of not having this safety net in place.
There are always going to be people who take advantage of the system. I think for those who can easily get a new job, the incentive to go back to work is probably less than somebody who can not. In general though, I think most people do just want to find a new job and use it as something to hold them over until they do.
Here are a few quick observations from someone that is currently ON unemployment:
1) I live in Oregon where the maximum benefit is $500/wk. When I was laid off a few weeks ago, I was making roughly $1,000/wk. I’ve been living, quite comfortably I might add, on around $325/wk. I receive the maximum benefit of $500/wk so I am actually continuing my current lifestyle and still SAVING money without touching my own nest egg.
2) I am 25, single, and live with 3 roommates, so my situation probably doesn’t apply to the average person/family on unemployment.
3) I worked in construction management prior to being laid off, and that market is DEAD here right now (you can actually hear the crickets chirping). Even though I come highly recommended by my previous employer, it’s highly unlikely that I’ll find a job that will utilize my skills.
4) I didn’t enjoy my job prior to being laid off, so I really don’t want another construction management position.
5) Put all those factors together, and you have the perfect example of someone that will more than happily make use of every week of benefits afforded me.
That said, Oregon and a few few other states have done something VERY RIGHT, and now allow people that prove themselves capable to collect unemployment while they develop their own business instead of look for another job (though I’ll admit they don’t set the bar too high).
I’m actually working more and harder now than I ever have before to start my own venture and ensure that it works.
There’s something to be said for the economy and society in general when people are allowed to seek out work that is truly meaningful to them.
If I didn’t have the safety net I have right now, I’d most likely be out wasting everyone’s time working in some temp job just to pay the bills without providing much value to world.
So cheers to unemployment insurance!
You sound like a perfect example of someone who might actually come out far ahead when you do start your new business. Good luck!
Yes, I think people take advantage of their unemployment more than ever because of the lack of ethics in our society and the anger at our current administration / government. People are more dishonest on their taxes and they take advantage of these benefits because they feel that the government “owes” them their own “stimulus package.” Citizens deserve their own “bailout.” This is my observation.
I definitely is a disincentive to be proactive about finding new employment, especially if you’re making close to what you were beforehand on unemployment. Does it mean that you won’t look at all? Probably not. it just means your incentive for finding any employment to pay the bills is cut drastically.
I do think that unemployment is probably needed, especially in times like these, but the continuous extensions of unemployment have got to stop at some point. There just isn’t any way to pay for it. At some point we also need to allow local agencies, churches and other charities kick in as well to give people a helping hand.
I know my wife a few years back was laid off, and while she did look for a new job, she didn’t look as hard as she might have without unemployment because she was making almost as much doing nothing. She ended up staying on unemployment until it ran out. After it ran out, she quickly found a job!
It appears to me that Sen. Jon Kyl (R AZ) is out of touch with the majority of the voting public. Senator Jim Bunning (R-Ky.) ended his opposition to extending unemployment benefits on Tuesday, I believe because he quickly realized he was on the wrong side of this issue. I cannot understand how any politician can oppose unemploymnet benefits or take a position like Senator Kyl took? Unemployment is near 10%, are these Senators implying that the unemployed are lazy? Most people would gladly take any job if there were any offered.
I do not like the ballooning federal deficit either, but like Linda C said above, “unemployment is NOT a living wage;” therefore, the sentiment that unemployment is a disincetive to find a new job is unsupported. Lastly, I feel like people that have lived a life of privelege are always the first ones to crow and complain about other people receiving a benefit.
Ooops! Typo corection: the second paragraph should read,” the sentiment that unemployment insurance is a disincetive…”
@Donald – I think both Kyl and Bunning were guilty of taking long run economic theory and applying it to the very, very short run. They are both correct in opposing extended unemployment benefits as a long run policy because it does increase overall unemployment over time. However, they are both DEAD WRONG in opposing a temporary extension through extraordinary times that will likely only last a few more years.
I’m sure voters will remind them of their error in the future.
Getting a job these days isn’t just a 1-2-3 send a resume-get an interview-have a job in a week! At 50 yrs old, I was laid off after 22 years of work and paid in a heck of a lot into the unemployment fund. Statistically speaking, I’ll never make as much as I was making before I was laid off. So forget the whole concept of being lazy. I prefer it as rethinking my next career and trying to get over the fact that my former boss and company screwed me AND the thanking the government for screwing the economy so it actually DOES take 3-4xs as long to find a well paying career to replace your life’s work…
Losing your job is traumatic, especially in a down economy. Unemployment insurance gives you a chance to breathe and re-evaluate–do you want to continue doing what you did before, or do you want to retrain? If you decide to open a small business, it gives you some time to establish yourself.
Unemployment insurance is a safety net. Without it, people with chronic health conditions will die sooner (because they can’t afford health insurance) and the homeless population will skyrocket.
Theres always going to be a small % of people who find taking a $200-$500 / week check better than getting a job. But there are very few people who can get by on unemployment benefits and would prefer to stay on unemployment rather than get a good paying job.
Unemployment insurance is a form of insurance. Insurance is setup to mitigate risks. Insurance is useful and necessary as a whole.
Some people might lean on insurance a little too much and be a little irresponsible due to that. But the vast majority of people rely on insurance to save them when they need it.
Applying this kind of logic to other forms of insurance: Health insurance could be viewed as a disincentive to being healthy. Auto insurance could be a disincentive to good driving habits. Should we get rid of health insurance and auto insurance? Doing so might force some people to improve their own health and drive better.
Don’t throw out the baby with the bath water.
Also… Unemployment is operated differently in each state. So the rules for getting it and keeping it are set by each state. If keeping unemployment is “too easy” where you live then that is your states fault. In my state it is definitely “too easy”. I know someone who took unemployment for months and never seriously looked for work at all. I think all she had to do was log into a website once a week, click a couple buttons to say she was looking for work (even though she really wasn’t) and thats it. On the other hand in a neighboring state I know someone who got on unemployment and it was much more demanding there. The state required her to take a day long class on how to write a resume and then they actually found her a job and required her to take the job or drop unemployment. So there was no option for her to be lazy and keep getting an unemployment check. So between two neighboring states the system is almost night and day different.
Are you kidding? an incentive to stay at home? obviously, you have never been on unemployment! I have been unemeployed in my entire life four times, once in the 80′s and three times in the last five years. How can it be an incentive to go from making a six figure salary to $1,000 a month in unemployment benefits? I would like to know if anyone no matter what income level, can survive on $1,000 a month. Pay rent or mortgage, utilities, food, gas, health insurance, car maintenance, the bare necessities. AND….PAY TAXES ON THE $1,000!
Precisely. Now that’s a worthwhile insight.
Unemployment compensation is a disincentive for employers to RIF people.
It doesn’t offer comfortable enough living to discourage the job search.
If some people are getting to the point of collecting unemployment for almost 2 years at what point should it start to be called welfare?
For every one story about someone “coasting” on unemployment on the government’s dime, there are probably 20 stories of families and individuals who would be in DIRE straights without this social safety net. We can’t just live in the law of the jungle, of survival of the fittest because our WHOLE society would degrade if we chose that way. We have poverty but there are countries where the poverty is MUCH MUCH worse, and those are not good societies to live in. Especially right now, wanting and needing a job are NOT the same thing as being able to get one. People have mentioned temping – as a long time temp I can tell you that there are JUST NOW starting to be temp jobs again. If there are X number of temp jobs, and 10 times X number of applicants, those other 9 people must live on savings, family, friends or… it’s better to temporarily subsidize them until lagging job market recovers… which will happen sooner if we don’t tailspin downwards into poverty and no consumer spending.
I agree the unemployed folks need some kind of assistance while they are unemployed but a government run program that does not deliver is not the solution. The way things are run in government today which is incurring debt at a rapid rate will only burden the future generations and may even collapse our economy much like Greece.
I was thinking maybe have unemployment insurance, that individuals like us can purchase and depending on the logistics of it can help with paying for our necessities. Just a thought..
Really, what would that solve?
Instead of people compplaining about the government everyone would be complaing how a private insurance provider denied their unemployment claim. Corporations are not a magic bullet either.
saladdin
Things should be getting real interesting later this year and next when there have been so many millions of people who have been collecting for around 2 years and still have ZERO prospects of finding ANY work. What’s it gonna be? People who are going into their third year of collecting unemployment. It’s not like things are gonna get better any time soon. Really….where does it stop.
Probably when the economy turns around. I mean, what exactly are the alternatives if people actually can’t find work?
The economy aint turning around any time soon. It can and will most likely be like this for YEARS to come. Millions of the jobs lost will NEVER come back. Unemployment has to end one day. Eventually there will be millions of people who have been looking for jobs for 4 or 5 years….should they still be collecting unemployment? When does it start to be called welfare?
Jim,
You are an idiot! I can tell you have never been on unemployment before because if you have you would have never wrote this.
Thankfully, I have never been on unemployment before but I think that if you take emotion, and name calling, out of the equation then you’ll see how it’s a disincentive. That’s not to say it’s not a good program, I think it’s important and a good thing, but it’s still a disincentive that can reward laziness.
Jim,
That’s right! It “can” reward laziness if your happy with a $350 per week paycheck. That barely pays the for many people. So if it “can” reward laziness please give me an example. Otherwise, this is just poorly thought-out nonsense.
That barely pays the *rent* for many people.
code_cannibalizer,
You know nothing about human psychology if you can’t understand that giving people money to do something will encourage more of it. Think about homeless individuals collecting soda cans to recycle for 5 cents per can. It isn’t much money, definitely couldn’t pay rent with it, but it is still an incentive for them to collect every can they can find.
So yes, giving people money for unemployment does encourage people to stay unemployed longer. To suggest otherwise clearly indicates you aren’t thinking logically and are having a knee-jerk emotionally based response to Jim’s post.
In some parts of the country, you can live on that amount of money. For example, many places in my home state of Iowa (I don’t actually know what the max benefit in Iowa is, just that quite a lot of people in the state have jobs that pay less than $18K/yr).
When my wife and I lived in a town a bit to the south of where we now live (2004), we paid $400/month for 3 bedroom apartment.
In Manhattan, not so much, I agree.
“you would never have WRITTEN this.” Hmmm. Pot calling the kettle black?
Do you have any other comments besides correcting other peoples grammar?
unemployment is great
I’m living large with this money
thxs U.S of A
finally getting back some money from these elite pricks…
I was “temporarily” laid off once while my vendor company went into renegotiations to renew our service contract with the State of Florida. My manager was adamant that he wanted us to return after the negotiations were completed. He strongly urged me and the other 30 employees to go to the unemployment agency and file claims. His thinking was that it would be much easier for him and the company for us to go on UE and be available when the company resumed business than to hire and train new employees. Those three months I spent on UE were wonderful and awful at the same time. I can definitely relate to how someone can be enticed into getting comfortable with being paid to NOT work, but the UE benefits are also low enough to make just getting by a struggle. The payout is better than nothing, but no one’s going on a Caribbean cruise with the money they’re getting from unemployment.
Unemployment is like prison. While you’re there it would behoove you to learn some new skills and better yourself so you don’t end up in the same situation again. I doubt there is any way to make that compulsory however.
“Unemployment is like prison.” Thats the best phrase I’ve heard of to describe it.
I was laid off in 2001 and drew 9 months of unemployment. I took the opportunity to sharpen my skills, start a business and spend time with my newborn daughter. My wife and I have always been frugal so it was not too much of a burden to ‘go without’ for awhile.
Since then I have earned well over a million dollars, have a successful business and career that I love. I am at the point in my life (not yet 40) where I could cash it all in and live quite comfortably for a long time but that is just not the point. It may not seem like it but getting laid off can be the best thing that ever happened to you. What’s the Janis Joplin line..”Freedom’s just another word for nothin’ left to lose”? Now that you have nothing to lose, Follow your bliss.
During the first 2-3 month stint as an Unemployed American I was practically immobilized. How dare they fire me!… Of course they would fire me, I’m worthless… I’m not that smart… I’m better than that job…and so on.
Men maybe more-so than women in the U.S. have their entire identity affixed to ‘what they do for a living’. When that identity is shattered, you need time to recover.
For anyone who is reading this and who has struggled to find employment, keep at it and better yet:
1. Take time every day to master your passion and do it on the cheap. Do what you are and the money will follow.
2. Consider starting your own business. Go to the SBA and contact SCORE.
3. Remember that things always have and will get better. Put yourself in the catbird seat to take advantage of the recovery.
I am not pretending to be the model of success, I have and will continue to make LOTS of mistakes. I am convinced, however, that if I was not laid off back then, I would have a fraction of my current net worth.
just my $.02
Thanks for the refreshing opinion WR!
Of course Bunning was justified. Anyone who thinks otherwise is not thinking clearly.
I don’t think the point of unemployment has to do with incentives to find a job. If you want to work, you’re almost guaranteed to get a better paying job, even at minimum wage. If you’re looking for a reason to mooch, it might be unemployment, it might be your parents’ basement, it might be your naive girlfriend’s place. Unemployment doesn’t seem to really influence that decision.
Unemployment exists for 2 reasons.
1: A little bit of help to hold a person over while they job hunt, if the lost job is through no fault of their own. It’s not enough to live off, but it’s enough to stretch what you have a little longer.
2: Keeping consumer spending going. In a country with no unemployment insurance, there’s an easy trap; unemployment goes up, people spend less because they have nothing to spend, leading to lower profits for businesses, leading to layoffs, leading to higher unemployement, lather, rinse, repeat. Unemployment insurance keeps those businesses up while keeping the unemployed’s heads above water.
This new narrative that unemployment insurance is somehow stopping people that would normally be a part of the workforce from looking for work is counter to all known economic evidence. Most people want to work for a living, especially if there’s the potential for increased earnings later. Some people don’t want to work, no matter how much incentive you dangle in front of them, or what the consequences are if they don’t. Unemployment payments help the former immensely, only help the latter temporarily, and restrict a VERY vicious economic cycle.
It must depend on what state you’re in. One person said he earned only a hundred bucks less than his salary. Here in Arizona, unemployment is a tiny pittance. I earned $240 a day on my job; during the six months of twice-monthly furloughs, UI put a grandiose $73 a day into my pocket.
Laughable!
When I was finally laid off, I didn’t even bother to apply. The insulting “benefit” wasn’t worth the effort to jump through the endless hoops and fight with the bank and the state to get the money into my account and not on a debit card ridden with hidden charges and penalties.
Far from an employment “disincentive,” Collecting Unemployment Insurance is truly a hideous experience, from the worker’s point of view.
In the last 35 years I have been laid off twice. Once in the last big bump in the economy in the early 1980′s and then around 2006. I never got rich and worked hard to find a decent job. In the 80′s there were not many around here and after a long search and competing with 100 or so others on one position, got what I was looking for. Switch to 2006, I changed careers [old one had pretty much been outsourced] and took a position in a new field, at a wage much less than what I was paid in the 80′s, plus I certainly felt the age discrimination raise its head.
So was I lazy during the period I was collecting unemployment – no. Did I lose financially, overall – yes. Would I have been working without a lapse – yes.
Unemployment Insurance should never take place of your contingency fund.
You do have a contingency fund, right?
A fund that will pay at least six months of your current expenses, right?
I was laughed at when I gave a speech about this in 2006…
If the 10% of the population now on unemployment were receiving nothing, what do you think the state of society would be? Mortgages would go unpaid. Rent would go unpaid. Families would be evicted. And they’d be living on the sidewalk in front of your house.
All the folks I know who were laid off work their butts off to find work in their field. Could they find work quicker searching below their skill set? Perhaps. But society is better served by having a .NET developer doing that work rather than flipping burgers or stripping stolen computer hardware.
Unemployment insurance is a disincentive to theft, homelessness, and hunger. Don’t let the few who abuse the system destroy our civil society.
How long can a person be on UI before you should start to call it welfare? 2 years, 3 years? What is the number? Things are different this time around. Many of these jobs that have been lost will NEVER come back.
Unemployment Benefits
It was quite unerving to learn of the senator’s comments in regards to the correlation between laziness and unemployment benefits. In fact I take them to be offensive. I am not unemployed, however I find it interesting for a someone to say something like that while he and the majority of his collegues were intimidated into giving away trillions to the banks. Will cutting aid to Main Street help put a dent in the deficit monster? Hardly so. Perhaps the Senator would find a more compelling argument in putting to rest the system that caused this mess in the first place, The (Private) Federal Reserve!
I’ve worked for 30 years. My last job I was at for 23 years, the company had been in operation over 100 years. I live in one of the states with the highest unemployment. As far as wages, I’m making $250 less per week than when I was working. I won’t be able to make what I was even by time I retire in 15 years. I would imagine I’ll be using several extentions whether I want to or not.
Unemployment is a disincentive to anyone that is not a main breadwinner of their home. If your spouse is working and you can survive on just the one paycheck then there is no reason to actually try to find a job. Many job applications ask what wage you are expecting or ask for previous salary. If you ask for $50/hr you would never get a callback and could document that you turned in applications with companies A, B, and C each week. For the individuals that are main breadwinners then this income is often not enough for your family to get by on.