Tom Corbett is Right on Unemployment

Yesterday, PA Gubernatorial Candidate Tom Corbett made remarks about how unemployment benefits result in higher higher unemployment, recorded by Scott Detrow, and picked up on by Capitol Ideas, Commonwealth Confidential, and GrassrootsPA:

“One of the issues, and I hear it repeatedly – one of the individuals said, ‘I can’t get workers. People don’t want to come back to work while they still have unemployment.’’ He said. “They’re literally telling him, ‘I’ll come back to work when unemployment runs out.’ That’s becoming a problem.”

Corbett added, “The jobs are there. But if we keep extending unemployment, people are going to sit there and – I’ve literally had construction companies tell me, I can’t get people to come back to work until…they say, I’ll come back to work when unemployment runs out.”

Corbett is wrong to say “the jobs are there” – at least not in terms of the number of job opening that would dramatically return our economy to the employment levels of a few years ago – but accurate on the effects of unemployment compensation.

Anecdotally, we are hearing much of the same things from businesses: that employees are refusing jobs – or in some cases asking to be paid under the table to avoid losing unemployment benefits. Now these may not be the best paying jobs, or the dream jobs for workers – e.g., the Taco Bell I eat at weekly is hiring management position – but there is no doubt paying people to remain unemployed increases unemployment.

Unemployment compensation offers incentives for workers to refuse to take jobs, and to avoid seeking new jobs. In Pennsylvania, there is no penalty for turning down a job offer, and little enforcement of requirements to look for employment – two of the many problems with our UC system. Unemployment benefits create a double whammy, in that they are paid for through payroll taxes – and thus extensions and increases in benefits make it more expensive to hire workers.

The economic evidence that extending unemployment benefits increases unemployment is overwhelming. A recent Wall Street Journal piece by Dr. Art Laffer highlights much of this, and these conclusions are mirrored by economists like Alan Reynolds and Larry Summers (Obama’s chief economic adviser).

A study finds that each week UC benefits are extended increases the average duration of unemployment by recipients by 0.2 weeks. On top of that, the US Dept. of Labor reports $7.1 billion in overpayments in unemployment compensation.

Corbett may sound “mean”, but he’s not wrong. We need to reform our Unemployment Compensation system, not extend benefits.