Extending Jobless Benefits May Prolong Unemployment; NCPA Research Shows Chilean System Works Better

1/6/2003

From: Richard Walker or Sean Tuffnell, 800-859-1154, both of the National Center for Policy Analysis

DALLAS, Jan. 6 -- The National Center for Policy Analysis (NCPA) says that extending unemployment benefits may actually prolong joblessness for an estimated 800,000 Americans whose already-extended benefits expired Sunday (http://www.ncpa.org/pub/ba/ba426). President Bush and leaders from both political parties have promised to provide up to three months of additional jobless benefits, bringing the workers' total coverage to 52 weeks, one full year, of unemployment.

"The problem is people keep getting checks as long as they are out of work. As soon as they find a job, the benefits cease," said William B. Conerly, NCPA senior fellow and author of the brief analysis. Many academic studies show that more generous benefits and extended benefits tend to lengthen periods of unemployment.

-- Workers not eligible for jobless benefits find jobs twice as quickly as those receiving benefits.

-- Among those who are eligible, the likelihood that a worker will find a job more than doubles in the two weeks before benefits expire.

"All of the research shows that when you pay people not to work, there is less work," said Conerly. "We need a system that rewards people for finding jobs rather than for remaining jobless."

Conerly said Chile has adopted a program of individual accounts for workers, which has worked extremely well (http://www.ncpa.org/pub/ba/ba424/). Chilean workers and employers contribute to workers' individual accounts. During periods of unemployment, a worker may use funds from the account as a source of income. However, any funds remaining belong to the worker and can be withdrawn as cash during retirement. Since the funds belong to the worker, there is an incentive to find work quickly.

"In a dynamic economy, jobs are constantly being created and destroyed," Conerly said. "We need a system that makes it as painless as possible for workers to move from one job to the next."

William B. Conerly, Ph.D. is an economic consultant whose clients include the American Institute for Full Employment. He can be reached by e-mail at: bill@conerlyconsulting.com.

The NCPA is an internationally known nonprofit, nonpartisan research institute with offices in Dallas and Washington, D.C. that advocates private solutions to public policy problems. We depend on the contributions of individuals, corporations and foundations that share our mission. The NCPA accepts no government grants.