Maybe Sen. Bunning is Right about Unemployment Benefits

Here’s what Obama advisor Larry Summers wrote in The Concise Encyclopedia of Economics:

Unemployment insurance also extends the time a person stays off the job. [Kim] Clark and I estimated that the existence of unemployment insurance almost doubles the number of unemployment spells lasting more than three months. If unemployment insurance were eliminated, the unemployment rate would drop by more than half a percentage point, which means that the number of unemployed people would fall by about 750,000. This is all the more significant in light of the fact that less than half of the unemployed receive insurance benefits, largely because many have not worked enough to qualify.

HT to David Henderson at Econlog.

Note: The Chilean unemployment system, based on self-insurance, individual control, and better economic incentives, is far superior to ours.

Comments (4)

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  1. Devon Herrick says:

    When I was in graduate school, we discussed studies that found a high degree of correlation between an unemployed worker’s benefits running out and the unemployed worker subsequently finding a job. One of the solutions we discussed was to make unemployment benefits a lump sum regardless of when (or whether) a worker found employment. A better solution would be to draw from a personal (unemployment) account to reduce the incentive live off the system.

  2. Joe S. says:

    Very interesting. I bet the White House is not Xeroxing this article and passing it around.

  3. Tom H. says:

    You’re right. The Chilean system is far superior to ours.

  4. Ken says:

    There are a whole slew of studies on this topic — summarized I believe in a study or backgrounder by the NCPA. The evidence is overwhelming that the more generous the unemployment benefit, the longer the period of unemployment.