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Morici: Unemployment Benefits: A Burden on the Poor

NEW YORK (TheStreet) -- Extending emergency unemployment benefits, as President Obama urges, would slow growth and further burden the working poor.

State governments provide a basic benefit averaging $300 per week for 26 weeks. During the Great Recession, Washington financed additional benefits for as long as an extra 73 weeks.

With the recovery in its 55th month, the emergency is over. Another extension would make long-term benefits de facto permanent and create another entitlement. Republican leaders are correct to insist Democrats identify equivalent spending cuts or new sources of revenue.

Advocates argue those benefits provide the strongest economic stimulus, because the unemployed spend whatever money they receive on necessities. Their supporting studies, however, assume other federal programs aren't cut or taxes aren't raised to finance benefits.

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Cutting other outlays -- for example, on roads and schools -- would have an even bigger negative impact on gross domestic product and jobs than failing to extend unemployment benefits again, because some of the money from unemployment benefits wouldn't be spent but rather would be used to pay down credit cards and other debt.

Additional taxes to pay for more unemployment benefits would impose a terrible burden on the working poor -- the very folks Obama constantly reminds need the most help.

Unemployment benefits are financed by federal and state payroll taxes, which like the social security tax, cut off when a worker's wages exceed a cap established by the various states, according to federal guidelines.

Although these taxes are generally paid by employers, economists argue the taxes reduce the wages employers can pay low-income workers by a similar amount. Indeed, some of the extended unemployment benefits paid during the recession were financed by a special federal levy that hit low-income workers hardest of all, making extended benefits a cruel hoax on the working poor.

Unduly long unemployment benefits in an economy the president says is picking up steam encourage many unemployed to postpone serious employment searches. From Wall Street to Main Street, white-collar professionals have delayed accepting lower pay and changing occupations by running down savings and collecting maximum unemployment benefits.

Most could easily earn multiples of those amounts they received from unemployment benefits by accepting positions at somewhat lower status than their old jobs. It takes a rather twisted view of social justice to raise taxes on the working poor to pay professionals not to work but that is exactly what federally financed extended unemployment benefits do.

A recent study by the non-partisan National Bureau of Economic Research indicates extended unemployment benefits caused most of the persistently high unemployment after the Great Recession.

By raising the cost to employers of hiring low-wage workers, higher payroll taxes to finance benefits discourage employers from adding new jobs, especially in depressed areas. And extended benefits discourage workers from moving from high unemployment locations such as coal mining communities in West Virginia to more rapidly growing states such as Texas and South Dakota where the oil and gas boom is driving growth.

As with so many of Obama's well intentioned policies, emergency unemployment benefits slow growth, limit jobs creation and incentives to work among many well-educated Americans, and place the greatest burdens on the working poor.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

Professor Peter Morici, of the Robert H. Smith School of Business at the University of Maryland, is a recognized expert on economic policy and international economics. Prior to joining the university, he served as director of the Office of Economics at the U.S. International Trade Commission. He is the author of 18 books and monographs and has published widely in leading public policy and business journals, including the Harvard Business Review and Foreign Policy. Morici has lectured and offered executive programs at more than 100 institutions, including Columbia University, the Harvard Business School and Oxford University. His views are frequently featured on CNN, CBS, BBC, FOX, ABC, CNBC, NPR, NPB and national broadcast networks around the world.

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