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Thursday, August 11, 2011

How unemployment insurance insures unemployment

White House spokesman Jay Carney claims that paying people not to work is one of the best ways to create jobs:
It is one of the most direct ways to infuse money directly into the economy.
How about not taking it out in the first place? Carney apparently thinks the money appears by magic, but it is actually extracted in the most perverse way possible. Here is the beginning of Michigan's Unemployment Insurance information sheet for employers:
When a worker becomes separated from his or her job and files for unemployment benefits, the worker’s past employer or employers will probably be charged for any benefits that may be paid.
With slight differences, that statement applies to every state. Some are a little more rigorous, like Georgia:
In Georgia, employers pay the entire cost of unemployment insurance benefits [paid to former employees].
It's not a cost sharing system. It is not society that picks up the tab for this social insurance. In general, employers are on the hook for all payments made to their own former employees. Just like when you get in a car accident, it is your own insurance rates that go up. Psuedo-insurance you might call it. But in the case of unemployment insurance this is taken to the extreme. The unemployment benefits come straight out of former employers' bank accounts.

As a consequence, when the duration of unemployment insurance is doubled, as Obama pushed through in his inaugural "stimulus" package, the unemployment insurance liability faced by employers was doubled, and the only way they could avoid that liability was not to hire, so that's what happened: no hiring since February 2009.

If you were going to be on the hook for half an employee's salary for a full year for anyone you had to let go, would you hire? It is an insanely high penalty. $20,000 of liability for any $40,000/yr employee you take on. Absolute murder for the economy.

Add that the actual hit, when it lands, is going to land on precisely those companies that are already struggling to stay afloat. That's why they are laying off workers. So not only are firms not hiring, but when they try to save themselves by cutting back their workforces, they get pushed into bankruptcy by still having to pay half the laid off worker's salaries for up to a year.

Add also the perverse incentives for employees: that quite a few people will prefer not to work when they can get paid for staying home. It's a triple whammy.

The White House is blissfully ignorant of the destructiveness of the funding source for this job killer, ignorant enough that Spokesman Jay Carney could actually spew contempt at the reporter who questioned how paying people to stay home creates jobs:
I would expect a reporter from the Wall Street Journal would know this as part of the entrance exam.
Carney just passed his exit exam: time for this Baghdad Bob to leave.

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