Here’s a simple idea to cut unemployment that won’t cost the government any more money and won’t require devaluing our currency: Turn unemployment benefits into a signing bonus.
Until the Great Recession, few economists could have imagined that the government would offer laid-off workers up to 99 weeks of jobless benefits, the maximum now allowed. Ninety-nine is a very large number, and most likely the wrong number if you’re trying to spark a recovery. And so, here we are with a 9.1 percent unemployment rate — even higher when you count those millions of discouraged, marginalized Americans who’ve given up looking for work and are hoping to hang on to their sanity.
It’s time to turn the joblessness machine into a jobs machine. By transforming unemployment benefits into a signing bonus, we can create new incentives to propel people back into the workplace sooner, rather than later. Too many Americans are sitting on the sidelines, waiting for the end of benefits or for a higher-paying job to come along. You can’t blame them.
John Maynard Keynes pointed to the “sticky wages” problem. The laid-off U.S. Steel worker who had earned $60 an hour isn’t eager to pack his lunchbox for a 25 percent pay cut. Eventually, unless his skills justify $60 an hour, he will have to relent or retire permanently. This does no good for his mental health, and it damages the overall economy.
When you combine sticky wage expectations with 99 weeks of jobless benefits, pretty soon you’ve got a lot of depressed people sitting on their sofas watching daytime reality shows on the flat-panel TVs they bought on credit. You wind up with 2.1 million private-sector jobs created in the past 15 months, while actual hiring looks flat.
More than 6 million Americans have been out of work longer than six months, and the average span of joblessness is nearly 40 weeks and rising since last year, according to the Bureau of Labor Statistics (BLS). The Federal Reserve Banks of San Francisco and Chicago have calculated that unemployment benefits may have added between 0.4 and 1.7 percentage points to the jobless rate, even before benefits were extended to 99 weeks.
The federal government and the states must overhaul unemployment payments to prod people forward, not cushion them while they wait for the phone to ring. Here’s my plan for structuring a better system to do that:
After 26 weeks of receiving benefits, a job-seeker would be eligible for a “signing bonus” equal to three additional months of benefits if he or she took a full-time job. It wouldn’t matter whether the job paid more, less or the same as the worker’s old one. We don’t want the logistics mess of a “cash for clunkers” type of program, in which the government had to figure out which clunkers really clunked.
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