Despite recent news of job creation, the road to full employment seems slow and cumbersome. Unfortunately, that road is about to be complicated by the fact that the government is paying individuals to remain chronically unemployed. How could this be? Allow me to share a personal story.
Due to the economy, I have found myself unemployed twice since June 2009. In both situations, I have had the opportunity to collect unemployment compensation. In the first situation, I had to be talked into filing.
I currently make $375 (pre-tax) not to work. For the most part, the only rule I have to follow is that I need to apply to two jobs per week.
So, how could this be hurting me?
So, how could this be hurting me?
Part Time/Temporary Work
There is a great debate as to whether or not part-time or temporary labor is beneficial to the long-term economy. Specifically, does temporary or part-time work lead to the growth of full-time jobs? (A good discussion on this topic can be found in this British article)
I believe that part-time and temporary labor is beneficial because it provides skills to the workforce that unemployment cannot provide. Additionally, there are gateways between this type of work and full-time jobs. Many contract-to-hire positions are created as temporary labor for the potential employer to test the skills and abilities of their new employee before bringing them on full-time.
So what's stopping me from getting a part-time job?
Unfortunately, the unemployment benefits from the state I'm collecting are deducted dollar for dollar from anything I earn. Therefore, unless, I make more than $375 per week, I would be working for the same weekly pay. Furthermore, as an individual, I would be taking those hours worked from hours spent on productive behavior such as building my small business, seeking the appropriate career, and doing my own skills building (a management accounting certification and Excel programming). I believe my activities building skills are more beneficial long-term than if I swept floors, cleaned dishes, or cooked food.
What about accounting positions that are part-time? Why can't I accept those? Not only do I risk subsidizing my pay, but if the position ends without me working the equivalent of 800 hours, I lose unemployment benefits. Therefore, as a consequence of this program, short-term labor could actually result in earning less income. Who wants to take that risk when the safe play is to not work and earn a steady paycheck?
My Proposed Solution
As Milton Friedman put it (and explained in today's video), you cannot entirely eliminate a welfare system without creating some type of transitional process. I propose lowering the weekly unemployment benefit to $175. Then, for every dollar earned up to a cumulative of $375 per week, the unemployed person is not penalized. From that point, $1 is subtracted for every $2 earned, which further incentivizes the unemployed person to take on more hours or perhaps a second job.
Under this program, I would be paid less, but could work for the remaining income without being penalized. Not to mention, for many workers, skills could be maintained and refined, as opposed to being whittled away by prolonged unemployment.
This move would reduce the cost burden for states that are paying unemployment benefits with funds borrowed from the federal government. Emergency benefits from the federal government cost between $300 and $600 billion in the past year, therefore the savings to the program would be noticeable to our deficit problem.
