By Chris Edwards
Federal policymakers like to spend money helping people in need, but there are large and less visible costs to such welfare legislation. Here are some reasons why new UI spending is not a good idea:
- The U.S. economy has been out of recession and growing for more than four years. The unemployment rate is down to 7 percent and jobs are being created. The time for “emergency” UI benefits has passed and it’s time for us to go back to the regular benefit structure of 26 weeks. We all want the economy to grow faster and create more jobs, but the way to do that is to enact free market policies, not more welfare spending.
- There is no free lunch. Extending UI benefits for another year would cost approximately $25 billion, which is money the federal government does not have. It would have to borrow every cent of the added spending, and thus impose those costs (plus interest) on working Americans in the future. Proponents of more UI spending point to sad stories of individuals out of work, but there will be far more pain inflicted on millions of Americans in coming years unless we get federal spending and debt under control.
- Large UI benefits are counterproductive because they push up unemployment, as discussed here. Long-term unemployment has been particularly high in recent years. Meanwhile, employers may have a bias against hiring people who have been unemployed a long time. The upshot is that if generous UI benefits discourage people from taking less-than-optimal job offers early on, it ends up hurting them later when it is harder to find any job. Government “help” often backfires.
- States can fund their own benefits. Nevada Sen. Dean Heller wants to “shrink the size” of the federal government, yet he is co-sponsoring legislation to revive emergency federal UI benefits because his state has high unemployment. But there is nothing stopping Nevada from funding its own extra UI benefits, and thus no need for Heller to try to impose the cost of his state’s problems on the other 49 states.
- From a political perspective, it would be a big mistake for Republican leaders to go along with the push to spend more on UI. GOP leaders already caved in with more spending on the recent Ryan-Murray budget deal. If they cave in on UI, cave in on the costly farm bill, and cave in on upcoming debt-limit legislation, there would be no reason for fiscal conservatives to show up and vote Republican in November.
Our current UI system is economically damaging, hugely complex, and fraud-ridden. Rather than adding to the system’s problems with higher benefits, policymakers should consider moving to a pro-growth savings-based UI system, as Chile has done.
Chris Edwards is the director of tax policy studies at Cato