Title: The Costs and Consequences of Unemployment Benefits on the States | Mercatus Center
Headings: The Costs and Consequences of Unemployment Benefits on the States
The Costs and Consequences of Unemployment Benefits on the States
UNEMPLOYMENT BENEFITS
CONSEQUENCES OF UNEMPLOYMENT BENEFITS ON WORKERS
THE IMPACT OF UNEMPLOYMENT INSURANCE ON EMPLOYERS AND STATE FISCAL POLICY
POLICY RECOMMENDATION: UNEMPLOYMENT INSURANCE SAVINGS ACCOUNTS
CONCLUSION
ENDNOTES

Content: CONSEQUENCES OF UNEMPLOYMENT BENEFITS ON WORKERS
In a troubled economy, unemployment benefits provide individuals with some income security as they look for work. However, unemployment benefits also change the incentives facing the unemployed, lengthening the job search. By easing the pressure of finding employment, the system benefits the unemployed at the expense of overall productivity and long-run economic growth. Social welfare programs may also change workers' mentalities, leading workers to become less driven and unhappier as their dependence on the state increases. 4 Optimal design of unemployment insurance must consider how the payoff and duration of benefits relative to the worker's previous income affect the individual's incentive to seek employment. The perverse incentives of unemployment benefits are well documented. 5 Subsidizing unemployment draws out a job search. Generous benefits that subsidize "temporary idleness" may result in "chronic idleness." 6 As the state makes chronic idleness more attractive, more and more people will choose that option over productive employment. As people remain unemployed, their decreased spending will slow production throughout the economy, and the system will become less and less sustainable.