The Unemployment Problem

I think there is a case to be made for allowing people to continue to collect unemployment benefits after they find a new job, until their benefits are scheduled to expire.

The obvious case against this is how to prevent companies from gaming the system. Firing somebody, then re-hiring that person at a lower (but federally subsidized!) wage. Sure, we'd stamp it out at the most obvious level, but with subsidiaries and shell corporations, and simply the incentive for people to "get laid off" and then go and work at their close competitor, I don't see how it would work.

Unemployment benefits do not just affect incentives to search for and accept a job, but also incentives to create a job (become an independent contractor, start a business) and to re-educate oneself.

In this sense, unemployment benefits reduce the necessary re-calculation in the economy because many people keep waiting for the same old (high wage paying) job being offered to them.

If you are going to do that wouldn't it be better incentive wise to send every USA citizen a check each week in place of EI, AFDC, minimum wage, SS, public housing etc. a la Charles Murray?

Or alternatively have a hourly wage subsidy.

Come again, Arnold? A case can be made to allow people to continue to collect Unemployment Benefits after they find a new job? Granted you add that we should discuss the level of the subsidy but can you elaborate on this point, please?

I am curious as I feel that there should be very limited insurance (say 3 months) as the disincentive to work is remarkable.

David was a guest on a radio show about this and one caller claimed "When someone with my resume goes into to Wal-Mart looking for a job they don't even consider you." This is exactly not the case. My Father-in-Law works at Wal-Mart and he was a successful business owner with 2 degrees. People say they would flip burgers if they had to and yet they don't. They don't even cut back on things like cell phone usage. I don’t want to blow my own horn but I think I am the only person I can think of that when I lose my job I change to basic cable, use a pay as you go phone, turn down the air conditioning (and I live in Singapore) take the bus, drink only Instant coffee, etc...

Barro points out that people tend to spend it right away and it helps stave off disaster and we can always prune it back in better times. Are you of this opinion also?

Lliam when someone looses their job, they of course start to cut back on spending to some extent. But not everybody does it the same way. I prefer to downgrade my housing than my food for instance... And having applied at low paying retail, i can tell you that the answer I get is: you'll just leave as soon as you find a better job... Also holding a job does make it harder to find a better one.

@arnold: universal income or whatever you want to call it has fewer perverse effects...