Extended Unemployment Benefits Present Policy Concerns

March 15, 2011

Free Market Foundation

US states provide unemployment insurance (UI) benefits to involuntarily unemployed workers. UI benefits typically replace 35 per cent to 40 per cent of a worker’s weekly income. Normally, states provide UI benefits for up to 26 weeks. Workers in states with high unemployment rates may collect extended benefits for an additional 13 weeks for a total of 39 weeks. The federal government and the states normally split the cost of these extended benefits. Congress has modified the UI program so that workers in states with high unemployment now qualify for a maximum of 99 weeks of UI benefits almost two years, says James Sherk, a senior policy analyst in labour economics at the Heritage Foundation.

There are however policy concerns, says Sherk.

Higher unemployment: By reducing the need to look for new work, extended UI benefits cause some unemployed workers to take longer to find new work.

Longer unemployment: The consequences of extended unemployment benefits are some of the most conclusively established results in labour economic research. Extending either the amount or the duration of UI benefits increases the length of time that workers remain unemployed.

Reduces other income: Families respond to unemployment benefits by reducing other income. Wives’ earnings fall by between 36 cents and 73 cents for each dollar of UI benefits married men receive.

Source: James Sherk, Extended Unemployment Insurance Benefits, Heritage Foundation, February 22, 2011.

For text: http://www.heritage.org/Research/Reports/2011/02/Extended-Unemployment-Insurance-Benefits

For more on Welfare Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=44

First published by the National Center for Policy Analysis, United States

FMF Policy Bulletin/ 8 March 2011