NBER report proves what we knew

Undoubtedly, unemployment is a curse. It not only decreases income and consumption but also hampers national productivity. Moreover, unemployment means a sheer wastage of the national talent pool. Whenever recessions occur, unemployment emerges as a major issue, for which developed countries in particular have one ‘potent’ pill in mind – unemployment benefits. While benefits go a long way in reducing destitute living and in increasing consumption, the latest June 2010 revision by National Bureau of Economic Research of their research paper titled Unemployment Insurance and Unemployed Spells, quantitatively and statistically proves what was suspected all along: “Higher unemployment benefits are found to have a strong negative effect on the probability of [an individual] leaving unemployment.”

The unemployment benefits across the developed world are quite shocking. Norway provides 87.6% of the past salaries for 500 days as unemployment benefit. Finland gives 85.1% of the previous salary to the unemployed for one year. In other countries including Sweden, Israel, Japan and Germany, the unemployed can demand unemployment benefits between 66% to 99% of the previous salaries. An unemployed individual can claim 80% of his previous income in Luxembourg. In the US, Bush signed a bill to provide unemployment benefits for 13 additional weeks (over the 26 weeks of regular benefits), which cost $5.5 billion. The Obama administration is currently paying $290 per week per individual as benefit and planning to extend it further to 2.5 million people (the administration is paying $30 billion every week).

As empirical evidence too shows, there’s growing opposition to such blanket benefits. Should the solution be finishing off benefits? Not quite; but putting a logical cap on the number of days of coverage is a definitive must!