Should business owners pay for others to sit on their couch? The current unemployment insurance policy not only serves its primary goal of providing a safety net between jobs, it also allows some people to sit on the couch while they refuse work.
As a part of an independently owned staffing firm in Kansas City, we see this every day. We offer quality jobs to people who then politely ask us to call back when their unemployment insurance runs out. Meanwhile, we dutifully pay our taxes every month, which to add insult to injury have increased this year because of increased unemployment. We are effectively supporting a couch potato society among many unemployment insurance claimants.
Because of the recent increases in unemployment, the Kansas unemployment insurance fund, along with funds from across the nation, have been depleted. In response, the Kansas Department of Labor informed businesses last year that rates would increase in 2010, and for some that increase was 800 percent. This increase has real effects such as slower wage growth, higher prices, and, worst of all, lower job creation because of higher marginal costs per employee. The state can’t go broke, so raising unemployment taxes to replace the fund is a rational solution. However, so that this can be avoided in the future we should inspect how the funding might be protected to allow the economy to recover in a timely fashion next time instead of the slow recovery that we are currently facing.
Unemployment insurance was created in 1935 during the Great Depression. Millions were unemployed and couldn’t find jobs, so the program was created to help cushion the impact of the economic downturn and bring stability to families and their surrounding economies. According to the federal Department of Labor,
“Unemployment compensation is a social insurance program. It is designed to provide benefits to most individuals out of work, generally through no fault of their own, for periods between jobs. In order to be eligible for benefits, jobless workers must demonstrate workforce attachment, usually measured by amount of wages and/or weeks of work, and must be able and available for work.”
Social insurance can be valuable and it has undoubtedly been helpful to millions of families during our recent economic hardship, but is it a public safety net, a private insurance program, or a slush fund for couch potatoes?
As Congress, yet again, debates extending unemployment benefits, many politicians don’t want to deal with this important question. They concurrently claim that the program is a social insurance program integral to the economy (public good) and private insurance that workers pay into (private good), and they feel uncomfortable when they are pushed to pick one. If unemployment insurance is truly a public good then it should be used for the greatest public benefit. The claim is that when millions are unemployed they don’t buy goods which in turn can cause more unemployment, but when those people then refuse to work that argument is no longer valid. If, on the other hand, unemployment insurance is a private good, then the problem is that business owners, not employees, actually pay the tax and the government runs it.
The unemployment claimants aren’t to blame in either case. First, they were forced out of their last job. Second, the current policy allows and often provides them an incentive to stay out of the workforce. The problem is with a policy that provides a pay check for almost two years.There are assuredly better ways that the money can be spent. It is easy to imagine a private version of unemployment insurance, and without the multiple levels of bureaucracy it is almost guaranteed to be more efficiently administered. Undoubtedly, politicians will worry and declare that employees won’t buy unemployment policies, but state governments have mandated car insurance and the federal government recently mandated health insurance, so while a mandate isn’t the most American solution it should quell many of these leaders concerns.
It is time to fix the broken system. If unemployment insurance is going to continue to be a public good then it should focus more on job placement and job creation. Small businesses are the job creators. In fact, according to the administration, small businesses have created 65% of all net new jobs over the last decade, and should be given an incentive to hire the unemployed. For instance, the unemployment check could follow the employee to their new employer and phase out over time. This would effectively lower the marginal cost of employment, or the opposite of the current policy. Furthermore, benefits should be taken away from claimants who refuse a job while on unemployment insurance.
The current policy promotes a couch potato way of life. Many of us would enjoy being able to spend almost two years, paid time, with our family, but this does nothing but further hinder an already hobbled economy. Reform needs to happen soon, before businesses are forced to pay even higher unemployment taxes.
Roses Ammon is Vice President/Sales, Marketing & Recruiting of Staffing Kansas City, and has 14 years of industry experience. Roses now holds the position of Learning Chair for EO Kansas City as well as Forum Moderator.