Unemployment Insurance Isn’t the Problem, It’s the Solution

On Monday, Paul Krugman dissected the Republican view that emergency unemployment insurance should be ended, throwing 1.3 million jobless workers into immediate financial crisis. Sen. Rand Paul (R-KY), for example, claims that unemployment compensation keeps workers from taking jobs and that people should be cut off from unemployment benefits after six months to keep them from becoming dependent. The fact is, as Krugman points out, there are far more people looking for work than there are job openings, and for two out of three unemployed workers it is literally impossible to find a job, no matter how hard they work or how small a paycheck they are willing to work for.

The notion that people would rather get unemployment compensation than a job ignores how low weekly benefits actually are. In many states with unemployment rates above the national average, the average pay replacement rate is far lower than the national average. Mississippi, for example, has 8.5% unemployment and a UI pay replacement rate of 28.6%. Tennessee’s unemployment rate is 8.4% and its UI pay replacement rate is 28.2%. And Arizona’s unemployment is 8.2%, while its UI pay replacement rate is a near-rock bottom 24.9%. It’s hard to argue that such stingy benefits are keeping anyone from taking a job. The average weekly benefit in Mississippi in 2013 was $194, which works out to less than $5 an hour for a 40-hour work week.

The sad fact is that the unemployment insurance system is completely failing most of the unemployed workers who need its help. After decades of government neglect and hostility from the business community, the recipiency rate—the share of unemployed workers who get regular state UI benefits—has fallen to the lowest point in history. Just a little more than one jobless worker in four receives regular benefits.


Now, sadly, Congress has negotiated a budget deal that throws the millions of long-term unemployed under the bus, letting their emergency unemployment compensation expire December 28 with no extension. We are reaching new lows as the government turns its back on people desperately looking for work in an economy that provides too few jobs.

It should be obvious that unemployment insurance is not the cause of the weak economy. If anything, a case can be made that strengthening the program—getting higher benefits to more people—would lift incomes and economic activity. Cutting off emergency benefits from more than a million workers on December 28 and another 800,000 by March 2014, as Congress is threatening to do, would cost more than 300,000 jobs next year because of lost consumer demand.