Does Long-term Unemployment Insurance Keep People From Jobs?

Does Long-term Unemployment Insurance Keep People From Jobs?
By J Lang Wood
Published March 18th, 2014

With more Americans being out of work for longer periods of time, a debate about the value of long-term unemployment insurance for those who have lost their job has begun. Although no one questions the value of unemployment benefits for those who have recently lost a job, many are beginning to question whether unemployment checks for those who have been out of work for longer than six months helps on inhibits chances of getting a job. A number of considerations factor into the argument.

The Problem of Long-Term Unemployed
Around 8 million jobs were lost during the Great Recession of 2007 to 2011. Many of the losses were permanent, particularly in the building and manufacturing sectors of the economy. As many as 4 million may still be looking for employment. Research into the long-term unemployed indicate that many of them are older, generally over the age of 40, and they were often laid off from their jobs through no fault of their own. These people often have a great deal of experience in their field. However, they may find it difficult to find similar work that has been computerized or consolidated out of existence.

How Unemployment Prevents Employment
Undeniably, unemployment takes people out of the employment mindset. Another factor is the fast rate of technological change that occurs in workplaces, which cause skills to become out-of-date quickly. Business trends also change fast, making it harder for people to keep up with their industry unless they make a conscious effort to do so while unemployed. These factors work against easy re-entry into the job force and can make unemployment an extended period that whittles away savings and undermines financial security. Moving to a more job-rich area of the country may become less economically feasible.

Stopping Unemployment Checks
Although some politicians believe that stopping the unemployment checks for those who have been out of work for more than six months "motivates" them to get moving and looking for work, this may not be the result. The U.S. Bureau of Labor Statistics estimates that there are currently three people unemployed for every job that is available. Making this math work for the unemployed is still unmanageable. Alan Krueger of Princeton University and Andreas Muller of University of Stockholm did a studied on unemployment and how people look for jobs. They find that job seeking does drop off as people exhaust their contacts and obvious job sources. They get a "second wind" of job-seeking activity right before their benefits expire. However, they also find that it's not necessarily the case that the unemployed choose to remain on the reduced income of an unemployment check by choice. The very activity of job seeking creates high stress and anxiety levels that create negative states that keep people from finding work.

The Consequences of Denying Unemployment
In spite of the negative consequences of long-term unemployment, there is still no evidence that cutting benefits to these people changes the equation of how quickly they are able to find work. A study published in the October issue of Social Indicators Research by sociologist Jan Eichhorn suggests that the generosity of unemployment benefits had no effect on peoples' drive to find a new job. Cutting unemployment does not automatically produce new jobs for these people, and in fact, may hinder job creation by keeping more money out of the economy.