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Good Question: Do Benefits Keep People From Working?

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(credit: CBS) Jason DeRusha
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By Jason DeRusha, WCCO-TV

MINNEAPOLIS (WCCO) –
If the Congress and President Barack Obama don’t act, unemployment benefits for 2 million Americans will run out by the holidays. So, the President wants to extend benefits. However, do unemployment benefits discourage the unemployed from finding a job?

“This is a tricky question,” said Hamline University Professor Jack Reardon. “Most people would love to get a job.”

However, simple economics would dictate that if someone can stay home and not work and get a check for $300 a week, they won’t take a job that pays them less than that, which is about $15,000 a year.

On wcco.com/jasonblog, DB wrote that his unemployed wife got a retail job, “but when she realized she would have to work 15 to 25 hours per week to just equal her unemployment,” she took a pass..

Jennifer Westphal admitted, “I looked a lot less fervently because I had benefits.” She ultimately found a job, but wonders, “If you deduct what I would have got from unemployment and what I pay for child care, my net gain is about $5 an hour. Sometimes, I wonder why I didn’t just stay home on the government dole.”

Many economists acknowledge that unemployment benefits have a slight affect on the length of time people stay unemployed. Of course, the availability of good jobs is the key factor.

“One of the benefits of this cushion is to enable any one of us that is out of work to be looking for the best job out there that will fit us. This is the benefit for all of us in the system. It’s not just about finding a job,” said Reardon.

There’s also a major benefit of having this unemployment insurance money circulating in the economy. Harvard University professor Raj Chetty prepared a research project showing that even in a stable economy, the benefits of having unemployed people spending their benefit money on bills and goods outweighs the potential disincentive towards finding a new job.

So, the question is about how much of cushion is just right to take care of people in a bad time.

“How comfortable should we make this cushion? If we make it too comfortable, people won’t get up and get out of the cushion,” noted Reardon. If it’s not comfortable enough, it hurts the overall economy, he added.

“We don’t know exactly the dimensions to make this cushion. I wish we did,” said Reardon.

WCCO-TV’s Jason DeRusha Reports

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