by Pedro Miranda

Created on: July 06, 2010   Last Updated: July 07, 2010

This is going to sound heartless, but it is not meant to be. A person is unemployed when he or she cannot find a job; more specifically, he cannot find a job that he or she is capable or willing to perform. For instance, there might be jobs available as a registered nurse, but if the unemployed person is, say, an architect, those jobs are not available to him. Or perhaps the job that is available is that of a gardener, and the person that needs the job is a chemist.

The purpose of unemployment compensation is to provide a safety net for the worker who loses a job, until he or she can find another. When, as happens now, the economy is in a downturn, it may be awhile until another job becomes available, and unemployment benefits may run out. There is always the temptation for the government to try to soften the blow by extending the unemployment benefits period. That is wrong and only prolongs the recession.

Why?

The thought that extending the benefits will help is predicated on the concept that, if we only wait long enough, the jobs will come back. But that is usually not the case. It is true that jobs in the service industries may come back when the economy recovers, but these industries employ people for short periods of time (Very few people work at McDonalds for a career) and the pay tends to be low. Manufacturing and industrial jobs, which are the most affected by this, or any recession, more often than not do not come back. These jobs require infrastructure that gets old so, when the recession begins to turn around, employers often find it more profitable to build new, state of the art, plants, often elsewhere, rather than deal with the aging plants that they mothballed one or two years earlier. And let’s not even talk about moving the operations to a right to work state versus a union state.

One of the reasons the employment rate in the US is usually lower than Europe’s is that our workforce is highly mobile. Our unemployed worker in say, Michigan, will, after a period of being unable to find a job, move to wherever there are employers hiring, and restart work there. Extending jobless benefits just keeps him tied to the place where jobs aren’t instead of freeing him to go where they are. In addition, extending benefits will hinder the recovery because the employer, who is trying to start up a factory in Nebraska or Colorado, does not have access to the pool of experienced workers that are sitting in Michigan collecting their benefits, waiting for jobs that may or may not come back.

There is a third whammy: Extending these benefits cost money, money that perforce has to come from those workers who still have, and the employers who still provide, jobs. This leads to higher taxes, higher costs and a further dampening of economic activity.

Instead of extending benefits, we should make it easier, and cheaper, for employers and entrepreneurs to start and expand their businesses. That will create sustainable jobs, and turn the economy around the fastest.

Learn more about this author, Pedro Miranda.
Click here to send this author comments or questions.