Congressional Democrats do not understand Unemployment Insurance
Posted by Mike Sylvester - 6/7/08 @ 12:13 pm - Filed Under 2008 National Elections, National Politics
Democrats in Congress are once again trying to expand unemployment benefits in an effort to gain more votes during an election year. Consider the following facts:
Unemployment has ranged between 3.9% and 7.6% over the last 20 years.
The Federal Government has an unemployment program as does each of the fifty states and three US Territories. Each State runs its own program with its own rules. The Federal Government provides matching funds to the States as long as the States structure their programs to meet certain Federal Guidelines.
The program is funded by a tax on almost all employers who pay their employees payroll. The entire cost of the program is born by employers; employees pay nothing.
The program was started about 70 years ago as part of the New Deal.
97% of all of the workers who are paid a paycheck are covered by unemployment insurance.
Most states allow a worker to draw up to 26 weeks of benefits, Massachusetts and Washington allow 30 weeks.
There is a provision that allows workers to draw an additional 13 weeks of benefits if unemployment rates are relatively high. (We are not there yet nor are we even close)
Seven states allow an additional 7 weeks under certain circumstances.
Enough of the facts and on to analysis:
The unemployment rate has been relatively low for the past several years. The unemployment rate has risen to 5.5% which is near the average unemployment rate over the last twenty years.
The unemployment insurance program is 100% funded by taxes on employers; there is no cost to employees.
Each State has its own tax rates and I will use Indiana as an example. A new business in Indiana will pay a 2.7% tax on each employee for the first $7000 of wages paid to an employee and an additional .8% to the Federal program on each employee for the first $7000 in wages paid. A companies rate will change once per year depending on how many of their employees claim unemployment benefits. An Indiana companies rate will vary between 1.1% and 5.6% under the current Indiana laws. (Note Indiana is operating at a deficit and is spending down its fund currently; expect these rates to increase early next year.)
So an Indiana company will have a total (Federal + Indiana) tax rate of between 1.9% and 6.4% of each employees first $7000 in wages. In other words almost every employer in Indiana will pay between $133 and $448 in unemployment taxes for each employee who makes $7000 or more per year. They will pay a lessor amount for those emplyees who earn less then $7000 per year. Companies who have a higher percentage of employees who claim unemployment benefits will tend to pay a higher rate then those companies who have fewer claims.
The Democrats in Congress want to expand benefits and allow employees to draw an additional 13 weeks of unemployment. I am against this for many reasons:
1. I am against the entire unemployment insurance program in the first place. I believe in individual responsibility and I think the entire program should be abolished. It is Socialist to force employers to 100% fund a program that allows their employees to draw benefits if they are laid off or work seasonally. I think individuals should put back a portion of their salary to deal with layoffs. I have always done this and so should everyone…
2. If the Democrats expand the length of time workers can draw unemployment benefits then the unemployment programs will have to pay out more money and hence they will have to raise the unemployment insurance rates employers have to pay. This increases the cost of doing business and encourages companies to move overseas or lay off even more workers.
3. Increasing the amount of time workers can draw unemployment benefits actually discourages workers from finding new employment. When you are drawing a government check you will not look as hard for a new job.
4. The Democrats last tried to extend benefits as part of the Iraq war funding bill. I hate it when our politicians (And BOTH parties regularly do this) put a bunch of unrelated things together in one big bill. It is wrong.
Does anyone reading this post support expanding unemployment benefits another 13 weeks?
Mike Sylvester
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36 Responses to “Congressional Democrats do not understand Unemployment Insurance”
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Take your ideological blinkers off and try to understand that a faltering economy needs stimulus, and the best way to do that is to give money to people who will spend it on essentials in the market–the unemployed.
Real wages have gone down, the economy is stagnant–or worse–and people are in need of assistance.
As far as your “socialist” comment, people like you would destroy Social Security and dismantle OSHA. But at the same time bail out Bear Stearns, manipulate the interest rates, and STILL allow mega-corporations to avoid taxes. Ah yes, socialism is only bad when it helps the common people. Republicans beleive in immaculate conception of “free market” capitalism but avoid gazing at the bloody corpse they left behind.
YOU are the one that doesn’t understand unemployment insurance. Try Econ. 101. (Let me guess, you also support the illegal war in Iraq, which, with its collussion of business and government, is hardly free market.)
Idiot.
Yes unemployment is up but you are not a statistic and there are still thousands of 75K, 100K and 150K jobs out there. try these sites:
http://www.realmatch.com
http://www.monster.com
http://www.hotjobs.com
If people try, they will succeed!
Well that pretty much summed up what would have been my response so I’ll just add “ditto”. Also important to note that more than one study has shown that unemployment insurance is one of the single most productive benefit plans in terms of stimulating and growing the economy with a high return per dollar spent.
Um, except for the last 5 or 6 lines. I don’t often agree with Mike but I think he’s far from being an idiot.
American, for the record:
You are correct:
I would simantle unemployment.
I would dismantle social security.
You are somewhat wrong on:
I would NOT dismantle OSHA; however, I worked
in factories for a long time and I would
streamline OSHA, they both hurt businesses
as well as help employees.
I think they mess with the interest rates way
too often.
You are completely wrong about:
I would never have bailed Bears Stearns.
I would close all tax loopholes, there is no
reason to help mega corporations.
You definately need to re-take economics 101. It is absurd to think that we should pay people unemployment benefits for 9 months in a time when our unemployment rates are below their 20 year average. What you suggest is more like welfare.
I will leave the name calling off; you obviously have no idea what you are talking about since you were wrong on my stance on many issues…
Badget:
Please post a link so some studies that show unemployment benefits “stimulate” the economy.
I would guess that the same people who think the Economic Stimulus Package is a good idea will think unemployment benefits stimulate the economy.
ANYTIME the Government spends money it stimulates the economy; however, our Government is borrowing the money from China and the National debt is rising. Each year we pay more and more in interest on the Federal debt which takes money away from future Government spending.
Mike Sylvester
Ah, no denial about supporting this lunatic war, which is possibly the biggest giveaway to corporations in the history of the world. Socialism for corporations? That’s fine! Help to the unemployed? No way!
(I notice how you support OSHA, only because at one point you needed its protection. That seems to be the conservative way: no empathy, only a “me-me” mentality. People like you can never imagine wearing the other shoe.)
And Mike, instead of guessing (”I would guess that the same people who think the Economic Stimulus Package is a good idea will think unemployment benefits stimulate the economy.”), try using this new tool on the Internet called “Google.” My God, you work as a writer but can’t be bothered to look up information? Looks like you might be collecting unemployment checks soon, too!
Center on Budget and Policy Priorities, “Unemployment Insurance as Economic Stimulus”: http://www.cbpp.org/11-15-01tax.htm.
As far as name calling: quit acting like your beloved president, and I’ll quit calling you an idiot.
American:
You might want to go back to Daily Kos…
You also might want to change your handle to “Socialist.”
Mike Sylvester
Amercian, I mean Socialist,
Why are you bringing up “this lunatic war.”
I can tell you have no idea what my views on the Iraq conflict are; that much is obvious.
Also the “lunatic war” you are referring to has nothing to do with unemployment insurance.
You would be better off hanging out over at Daily Kos or with your 8th grade class…
Mike Sylvester
To: “Leftard American”
From the Heritage Foundation:
Unemployment Insurance Does Not Stimulate the Economy
by James Sherk and Patrick Tyrrell
With the economy weakening, some analysts have argued for increasing unemployment insurance (UI) benefits from 26 weeks to 39 weeks to stimulate economic growth. Few studies support the idea that extending unemployment benefits significantly stimulates the economy. In addition, extending UI benefits would do the following:
Encourage unemployed workers to stay out of work longer to collect benefits;
Encourage employers to wait longer to rehire laid-off workers; and
Do relatively little to increase consumption.
No Economic Stimulus
The government provides unemployment benefits to workers who are involuntarily laid off from work. These benefits replace a fraction of the workers’ weekly income, to a maximum set by state law, for up to 26 weeks. Unemployment benefits can cushion the blow of job loss and provide the unemployed with income support while they search for a new job.
The Congressional Budget Office (CBO) recently issued a report claiming that extending the length of time that workers can collect UI benefits to 39 weeks would be one of the most effective stimulus measures Congress could pass.[1] The report argues that this would transfer money to workers likely to immediately spend it, boosting consumption. Notably absent from the CBO report was actual research that supports this claim.
Economists in the 1960s thought that unemployment insurance could function as an important, automatic economic stabilizer.[2] Research in the 1970s demonstrated that this was not the case, and most studies since then have concluded that unemployment insurance plays a relatively small role in stabilizing the economy.[3] State-level studies find that unemployment benefits provide virtually no economic stimulus.[4] The lack of evidence for this connection is not surprising, because unemployment insurance is not designed to stimulate the economy.
Extending UI Extends Unemployment
Unemployment insurance gives money to workers that they lose once they find a job. This encourages workers to remain unemployed to collect benefits. Even for conscientious workers, UI reduces the pressure to seek employment. Unsurprisingly, research shows that when the government increases the duration of UI benefits, the length of time workers spend unemployed also increases.
[...]
Modest Increases in Consumption
The theory behind the UI-stimulus proposal holds that the government should transfer money to workers who will immediately spend it, because greater spending increases aggregate demand and stimulates the economy. This is a recycled version of Keynesian economic theories that economists and policymakers rejected after they failed during the 1970s.
These discredited theories stated that, in economic downturns, investment stops responding to the interest rate, and any money that is saved is essentially taken out of the economy, caught in a “liquidity trap.” Thus, the only way to boost the economy is to increase consumption. However, little evidence suggests that liquidity traps exist in the real world outside of economic theory. Milton Friedman also demonstrated that workers do not consume a fixed percentage of any income they receive. Rather, they base their consumption decisions on their expected permanent income. Thus, temporary increases in income that result from government transfers have only modest effects on consumption.
Or just go read the entire study here.
http://www.heritage.org/Research/Economy/wm1777.cfm
Mike:
So you are going to ignore the fact that I just handed you the link to the study on UE insurance as economic stimulus. Excellent! Ignore the evidence you don’t want to see.
HA! HA! HA! “Better off hanging out over at Daily Kos,” because if somebody disagrees with you they are obviously from the fringe left, right? That’s really clever, AND YOU TOTALLY IGNORE THE FACT THAT I JUST GAVE YOU A STUDY THAT DISPROVES YOUR ORIGINAL THESIS!
That’s so smart, because it totally deflects away form the fact that YOU ARE WRONG, AND CAN’T BE BOTHERED TO RESEARCH FACTS ABOUT YOUR COLUMN, WHICH INDICATES AN IRRESPONSIBILITY TO YOUR PUBLIC.
But instead you try to make lame jokes about high school and Daily Kos? Sheesh!
So tell me, Mr. Free Market, what are your views on Iraq, and how different are they from what I’m assuming (i.e., you support the war and the lies the war is built on)? Why should anyone who has demonstrated such a lack of intelligence and decency (i.e., YOU!) be listened to ever again?
American,
You cannot always infer a person’s stance on issue even if you know his stances on other issues. A person who supports farm subsidies may or may not support gay marriage, the Iraq war, the Afghan war, steel tarriffs, etc. Sometimes if you spend a lot of time reading what a person has written in the past, you can guess what their position might be on future issues.
American Socialist,
First of all your link does not work. Why am I not surprised?
I am certain there are studies that take the opposite point of view I have. They do not disprove my stance; they just look at it from another point of view. On issue after issue there are studies that take different points of view.
I would challenge you to point out ONE item in my post which is demonstratably incorrect…
I opposed going into Iraq from the beginning. I currently feel that we shuold pull out our troops over the next 18 - 24 months. I think that the three factions in Iraq will be trying to kill each other for generations to come and I do not want to see our troops in the middle of that mess…
You can always google the title of the report if you are too stupid to see that the link shouldn’t end in a period.
(You don’t actually get paid to be this sloppy, do you?)
Here’s another link, Mike, if you are not too lazy to look at it. Admittedly, it’s from the Communistic Congressional Budget Office, which I think is based out of Cuba (http://www.cbo.gov/ftpdocs/89xx/doc8932/1-22-TestimonyEconStimulus.htm).
If you bother to read it–as a columnist should, although I guess you are the exception, having no need to research, only consult your “gut instinct”–you will see in the appendix that UE insurance extension “large” cost-effectiveness, a “short” lag from enactment to stimulus, and “small” uncertainty about the policy’s effectiveness.
So please consider changing the title of this post to “Mike Sylvester Does Not Understand Unemployment Insurance (and Prefers to Grab ‘Facts’ Out of His Ass to Misrepresent the Situation)”
(BTW: I know you don’t like to read, but the AP style guide can teach you how to capitalize titles of articles/headlines/etc. Not only do you ignore the facts that are relevant to your article, you don’t know how to style your words. You really should support the extension! At this rate, you will be collecting soon too!)
American,
The CBO is not a Communist organization, they are a liberal organization - at least that’s what Mark Souder says.
Ok, sorry for the foray…
“Liberal,” “Communist”–whatever. I’ll wait for Mike to tell me what to think!
(Why is he so quiet?)
American,
You were the one who typed the period at the end of the link. If you wanted Mike to read it, you should have acknowledged your mistake and resent the link.
The CBO can be relied upon to emphasize the positives of unemployment insurance. Here are the negatives:
1. If you don’t lose your job, everything that you spent on UE premiums is wasted.
2. People will often delay getting another job while they collect benefits.
3. Higher benefits mean higher premiums. Premiums add to the cost of employing a person, which causes companies to hire fewer people and pay those people less.
There are quite a few people who would be sympathethic to your point of view but are turned off by your sarcasm and insults. If your goal is to sell the virtues of UE insurance, then you should take this into account. If your goal is make Mike upset, you’ve failed. Mike isn’t upset, he is either ignoring you or simply hasn’t had time to respond.
But you’re always welcome to come to my blog. I love a good flame war.
Robert,
I believe the employer pays the entire amountso the individual “wastes” nothing.
Just for the record, I am diametrically opposed to Mike on his general premise - namely that we should abolish such programs including social security.
These two programs are some of the most successful programs in the history of this country. Because they have been mismanaged at times is no excuse to ignore the benefit.
Tweaks can and should be made but the safety net created by both programs has a strong economic benefit that cannot be denied…
It’s very difficult to pass on a response to the idiotic comments of “American Socialist” here. Obviously this is a prime example of why the rest of the world thinks all Americans are stupid. Since this stupid American is probably too stupid to understand my point, I’ll try to explain it in a remedial manner.
Dear stupid American, in your very first response, you took a personal jab at Mike. This overpowers anything reasonable that you might have had to say about the original post. In addition, you made the idiotic assumption that just because Mike disagrees with you on this economic issue, he also disagrees with you on our policy in Iraq.
I disagree with Mike on a lot of issues. On many economic issues, he is far more “conservative” than I am. Nevertheless, I respect his opinion enough to actually read what he says and respond to it, rather than calling him an idiot. Clearly Mike has won this debate. And the ironic thing is that it is not so much because of his own arguments as because of the poor representation of the alternate point of view by yourself.
I think Mike should be very proud that someone like you considers him to be an idiot. In fact, I am hoping that you will come back here and try to vilify me now. I could always use a boost in my image within the blogging community.
Remember, on this playground we actually like to play ball rather than just engage in name calling. So either pick up your toys and go home or learn to speak with some intelligence and character.
Mike is self-employed, so he pays all of his own Social Security taxes. I’m not sure if he has to pay UE insurance.
Both programs have stong economic costs that cannot be denied. What percentage of people in their twenties and thirties would choose a retirement program that pays such a low rate of return?
You all line up to defend a man who doesn’t respond when I proved him wrong with two links: one to a partisan organization, the other to the CBO, as nonpartisan as you can get. You may say I’ve lost the argument, but I don’t see how. Just because I insult the idiot doesn’t mean my argument is incorrect.
Mike pulled his info out of his ass and I caught him. He’s intellectually dishonest, a liar, and selfish to boot (he only supports government programs from which he’s benefitted–OSHA!).
You all might not like my tactics, but right-wing greedy bastards like Mike need a boot up there ass when they step out of line and shouldn’t ever be taken seriously. They are what’s wrong with this country. Selfish, deceptive to themselves and the public, and generally just bad all around, Mike should be doing menial labor instead of spreading lies around the Internet.
Robert:
I think you are a bit off.
And if your house never catches on fire, does that mean that your homeowner’s insurance is a waste of of money? The UE rate is 5.5% (which is a bit low, if you ask me). Do 5.5% of houses catch on fire? No. Yet there’s a larger payout with UE insurance, yet you’re trying to say that it’s not worth it. (Am I stretching the analogy here? I might be.)
Sure, there’s bad apples everywhere, but do you really think people who earned $1,000-plus per week while employed are happy on $300 a week with UE insurance?
I don’t believe this without proof. Can you provide it?
(Hope my html worked. Mike: Go play somewhere else. You been pawned.)
To Everyone:
Please tone it down a bit. I don’t mind people arguing vehemently but the personal attacks and insults are not necessary.
American:
I understand conversations on blogs can get heated but there’s no need to insult Mike personally. I disagree with Mike on many issues, including this one, but in no way would I characterize him as intellectually dishonest, a liar, selfish or an idiot.
I think you owe Mike an apology but that’s ultimately a decision you have to make. However, I will ask that you respect this forum and try to maintain a more civilized discourse.
Thank You
American,
Jeff has made a reasonable request. This is his blog, so we should accomodate him. Let’s continue this debate on my blog: http://blogoftheenders.blogspot.com
If you like, I can put in a poll to see who “wins” the debate.
All right, no more attacks on Mike. I stand by my argument, though.
I’d like to hear your response to my nitpicking, Robert.
Robert
You guys are welcome, and encouraged, to continue the debate here. All I ask is that everyone try and refrain from personal attacks.
American,
I took my family camping Fri, Sat, and Sunday so I did not have access to the internet.
You really need to slow down, read my original post, and then read the comments. Your arguments are not cohesive and involve personal attacks rather then reasoned thought.
I have read the study that you cited. I did not bother to read it before because I aknowledged that there are people and studies that will feel the program is an economic stimulus.
After reading the study by the Center on Budget and Policy Priorities there are several interesting items to note:
1. The Center on Budget and Policy Priorities is a Democratic Think Tank.
2. The first two sentences of the study say “The key objective of an economic stimulus is to expand demand for goods and services. The more that any stimulus measure adds to spending, the more effective it will be in short-circuiting the economic slowdown.”
There are a lot of economimists and respected individuals who beleive the above two sentences; I am not one of them. The above two sentences would support all of the following:
A. Building an airport in every town with a ppopulation of 1000 or more.
B. Building a post office in every town with a population of 1000 or more.
C. Building a project like Harrison Square in every City with a population of 1000 or more.
D. Expanding welfare benefits.
E. The Maplecrest Road Extension.
Using the above mode of thought it is ok to borrow more and more money and increase the National debt as long as people keep spending their money and keep our economy moving along. This is short sighted thinking and must stop. Both political parties have been part of this line of thought and in my opinion it is going to lead to a depression of epic proportions. In my opinion Americans need to save their money not spend it.
3. This paper was written on November 15th, 2001. It was written soon after 9/11 and the economic impacts of 9/11 were front and center.
This paper was written entirely to support expanding unemployment benefits during an economic slowdown. As I pointed out in my original post:
Unemployment is BELOW its 20 year average. There is not a shortage of jobs at this time per National statistics.
In summary, this paper was written to support any government program on the basis that the more money consumers spend the better our economy will be.
This is entirely untrue and this mentality has led to the fact the the United States is currently between 75 and 100 trillion dollars in debt today if you count the costs of all of the programs in place that are under-funded.
The answer is NOT to keep spending money. Period.
Mike Sylvester
1. If you are a person who has a stable career, then unemployment insurance is not worth it. If you are a job hopper, then it is worth it. Most people fall in between. If companies were not required to pay UE and instead passed the savings on to their employees, most people would have enough in savings to get by in between jobs.
2. People who earn $1000 a week should have enough in savings that they would not need UE.
3. Increased business costs do lead to higher unemployment rates. If a company with 1000 employees has a labor cost increase of 1% with no increase in revenue, that can mean that company will have to make do with 990 employees.
I notice that this is being sold as “economic stimulus” rather than as a safety net. In this great country, the starving have access to food and the homeless have access to shelter. That is as it should be. Middle class people do not need hand outs.
I admitted to the fact that the CBPP study is partisan, although ad hominem arguments are neither here nor there.
True, building any such thing wherever would have some form of economic stimulus, but if you read the second study I cited you–from the CBO, hardly a partisan organization–you will learn that UE insurance is particularly effective in priming the economy.
Furthermore, Mike, there is a $35 billion surplus in the UE insurance fund. Spending it on what it is for is not economically unsound. Or would you prefer to have it raided for other spending, like our politicians have done with SS (which you, of course, don’t support, even though it is financially solvent–or, was, until it was spent on other things)?
There is no spending issue here. There is money in the fund. It is there to be used for UE insurance.
And God forbid expanding Medicare. We wouldn’t want to let our citizens have decent health care. Let those “socialists” in Europe take care of their own. Americans prefer to see people die on the emergency room floor after having been refused treatment!
You and Robert seem to have an ideological bent against UE insurance, when I think you should be concerned about the economy, not your red-herring arguments about government spending and handouts. (How much for this ill-conceived war is spent every month? Put your efforts into stopping true waste and unnecessary death, for God’s sake!)
Robert:
I don’t live in Fort Wayne; I just visit this blog via the Internet. But this statement is demonstrably untrue in my neck of the woods.
The CBO certainly is not a partisan orgnaization and I overall have a lot of respect for the CBO. It is one of the few arms of Government that seems to fuction fairly efficiently.
You state that there is a 35 billion dollar surpus in the Unemployment Insurance Fund. You must be talking about the funds at the Federal level. I will assume your number is correct; however, many States have Unemplyment Insurance Funds that are already broke or nearly broke. Indiana will be raising the Unemployment Rate that employers pay early next year since it has been operating at a deficit for many years. If the UE benefits are extended Indiana will have to increase its rate even further. Many other States will have to do the same thing if Unemployment Insurance is extended.
We should keep these surpuses to deal with unemployment when it increases to levels beyond the twenty year average.
You next start talking about Social Security. You say “Or would you prefer to have it raided for other spending, like our politicians have done with SS (which you, of course, don’t support, even though it is financially solvent–or, was, until it was spent on other things)?”
I am NOT in favor of raiding the Federal Unemployment Fund for other unrelated Government spending as our politicians have done for decades. If you ever read any of my posts you would know that…
You also state that Social Security is or was financially solvent; which is a complete untruth. Social Security is not solvent and never has been solvent since inception if you look at its payout structure over the next 75 years. From day one Social Security has had a liability oat the 75 year time horizon.
I agree that the Social Security Fund would have lasted longer if it was not raided; however, IT HAS NEVER BEEN SOLVENT NOR WOULD IT BE SOLVENT IF THE TRUST FUND HAD NOT BEEN RAIDED.
I have no idea where your next comment about Medicare came from; that program also has nothing to do with unemployment.
You next say that:
“You and Robert seem to have an ideological bent against UE insurance, when I think you should be concerned about the economy, not your red-herring arguments about government spending and handouts. (How much for this ill-conceived war is spent every month? Put your efforts into stopping true waste and unnecessary death, for God’s sake!)”
I do have an ideological bent against UE insurance. It is a socialist idea that has no place in a capitalist country. It is wrong and I am in favor of abolishing it.
Mike
Except for OSHA, for some odd reason.
I bet you are a big Ayn Rand fan. My God…
OSHA has gone way too far and has cost Americans jobs; however, worker safety is important and we do need to have an agency that ensures the workplace is safe.
OSHA has NOTHING to do with Unemployment Insurance.
I am not a big Ayn Rand fan actually…
Mike Sylvester
Western European countries are able to afford their social programs because not only do they have less per capita military spending, much of our military budget is spent over there. Keeping a base in a foreign city pumps a lot of American money into that city. Personally, I think we should bring our boys home from the Cold War as well as Iraq. You might agree or disagree, but the fact is that expanding social spending without trimming military spending will drive the US into debt even faster.
But if we cut military spending and corporate subsidies, we could cut taxes to the point where social programs wouldn’t be needed as much.
Et voilà, the House passed the extension. It was hard to root for it when it’s attached to illegal-war funding, but you take what you can. And it looks like it’ll pass the Senate next week.
Now we just have to get rid of the criminal-wiretapping retroactive immunity. Something stinks to high hell, and it’s the cowardly Dems. You can expect the Repubs to be immoral; I guess you can expect the Dems to be cowardly.
Pathetic.
American,
Though I agree that the retroactive immunity stinks, it still has little to do with what we were talking about. Plus, I think that you and I are the only ones still reading this thread.
You should consider getting your own blog. You clearly have a lot to talk about, and I think I would enjoy reading it. I might even link to it.