Friday, March 04, 2011

Extending the Pain for Your Benefit

Since the middle of 2008 the federal government has been extending unemployment insurance under the presupposed notion that they were helping those in need who had been unduly impacted by the harsh circumstances of the economic decline.

Yet, in a new study, Bhashkar Mazumder, senior economist and director, Chicago Census Research Data Center provides some pretty compelling evidence (along with a summarization of other similar studies with similar conclusions) that these unemployment extensions simply increased the unemployment rate and extended the average stay on unemployment insurance.

In fact, Mazumder estimates that the EUC 2008 extended unemployment policy (allowing for 99 weeks of unemployment insurance in most states with a national average of 95 weeks) added roughly 1% to the unemployment rate since its implementation.

This represents a fairly significant policy blunder when you consider that the additional 1% higher unemployment rate equates to roughly 1.5 million additional people remaining underutilized for a longer duration resulting in a slower recovery and a greater loss of skills.

Of course, Congress believed that what they were doing was simply a benefit to the individuals feeling the hurt from the historic economic crisis but, in the aggregate, their action was a net negative effectively extending the pain and suffering of the entire economy.

Further, one has to consider the sense of taking a policy that was originally structured as a sound and balanced (i.e. using actuarial science) insurance program and extending its application to nearly twice the duration simply because legislators believed that they need to lend a helping hand to constituents.