Free Markets, Free People

Unemployment benefits and the law of unintended consequences

We often point out the unintended consequences of government actions simply to make a point to those who think government is the answer to all problems. Those that believe that need to closely consider the results of government “solutions”.  For instance – let’s extend unemployment benefits and extend and extend them some more.  How could there possibly be a downside to that?

In a state with the nation’s highest jobless rate, landscaping companies are finding some job applicants are rejecting work offers so they can continue collecting unemployment benefits.

It is unclear whether this trend is affecting other seasonal industries. But the fact that some seasonal landscaping workers choose to stay home and collect a check from the state, rather than work outside for a full week and spend money for gas, taxes and other expenses, raises questions about whether extended unemployment benefits give the jobless an incentive to avoid work.

Members of the Michigan Nursery and Landscape Association “have told me that they have a lot of people applying but that when they actually talk to them, it turns out that they’re on unemployment and not looking for work,” said Amy Frankmann, the group’s executive director. “It is starting to make things difficult.”

Of course, what is happening is those drawing the benefits are dutifully applying for jobs as required by the state in order to continue to draw unemployment benefits.  But, when it comes down to actually taking a job, they’re not at all interested – they applied to continue to qualify for the unemployment compensation, not actually get a job.

So wait a minute – are you saying that a landscape worker can’t make as much as someone on unemployment.  Well, yes, but not for the reason you think:

The average landscape worker earns about $12 per hour, according to the Michigan Department of Labor and Economic Growth. A full-time landscaping employee would make $225 more a week working than from an unemployment check of $255.

But after federal and state taxes are deducted, a full-time landscaper would earn $350 a week, or $95 more than a jobless check. The gap could narrow further for those who worked at other higher-paying seasonal jobs, such as construction or roofing, which would result in a larger benefits check.

The maximum weekly benefit an unemployed Michigan worker can receive is $387.

Some job applicants are asking to be paid in cash so they can collect unemployment illegally, said Gayle Younglove, vice president at Outdoor Experts Inc. in Romulus.

“Unfortunately, we feel the economy is promoting more and more people and companies to play the system and get paid or collect cash money so they don’t have to pay taxes,” Younglove said.

Heh … ya think?!

Michigan offers unemployment benefits for up to 26 weeks (6 months). When those benefits run out, unemployed can apply for extended federal benefits up to a maximum of 99 additional weeks.

The federal jobless benefits extension “is the most generous safety net we’ve ever offered nationally,” said David Littmann, senior economist of the Mackinac Center for Public Policy, a free-market-oriented research group in Midland. The extra protection reduces the incentive to find work, he said.

It’s impossible to know exactly how many workers are illegally declining employment, but 15 percent of Michigan’s economy is underground, where people trade services, barter or exchange cash without reporting it to the government, Littmann said.

No incentive to go back to work and have a large portion of one’s earnings go to taxes and a large incentive to game the system andcontinue drawing the benefits while engaging in (and growing) the underground economy – all of these unintended consequences provided by?

Government – which as usual doesn’t know when to get out of the way.

But, this will come as a comfort, I’m sure:

A person becomes ineligible for benefits if he or she fails to accept suitable work, said Stephen Geskey, director of Michigan’s Unemployment Insurance Agency.

Yeah, I’m sure that’s strictly enforced and working out very well saving taxpayer dollars – don’t you?


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13 Responses to Unemployment benefits and the law of unintended consequences

  • In Arkansas a claiment for Unemployment benefits is not required to report any form of Social Security payments they recieve. When you add SSI and unemployment together, many would only break even or less by going back to work.—CONEY

  • I’m most struck by the claim that 15% of Michigan’s economy is under the table.  I’d be interested to know how that statistic was compiled and whether similar data is available for other states.  Unfortunately I couldn’t find a link in the post to click through to read the source from which you quote.

  • I really don’t know what things are like in Michigan, you must of had some pretty landscaped yards.  But for me it’s been pretty tough in the Dallas area, and this is one of the areas that has had approx. 8% unemployment.  Iam 53 years old, never had a lapse in working for the last twenty years, own a modest home, and never behind on my bills.  I have been unable to find any work——any work in my field which I have been involved in for 18 years.  The only thing I can say is thank God for the extension in unemployment, if not for unemployment I would have lost everything I have work for so many years. 
    Sadly enough we (the US companies) have off-shored our market and lost so many manufacturing jobs, I really don’t know whether or not there will be a recovery.  Sure is easy to say things are looking up if your young and employed, but not so easy if your on the other side spending what remains of your 401k to keep food on the table and pay the mortgage.

     “Off-Shoring the American Consumer into Oblivion.”
    Everyone is aware of it, we hear the stories and the reasoning that outsourcing and Off-Shoring jobs is to make companies more competitive.  The Number Crunchers and the CEOs swear by it, that outsourcing gives them the advantage to compete in today’s market.
    First we need to understand the difference between Outsourcing and Off-Shoring. 
    Outsourcing has been around for hundreds of years. Outsourcing is a way to be cost effective, while handing a process to an individual or group that either specializes in that process or can do the job more cost effectively.  In many cases your local dentist or doctor will send lab work to another organization for analysis, this is usually a good form of outsourcing which helps spread the costs and the wealth.
    Off-Shoring is the process that allows an organization to send the process not down the street, but to an entirely different country with completely different pay scale, human rights standards and political agendas.
    Off-Shoring can save thousands of dollars in payroll and benefit costs over the course of the year.  Much of what you hear is true.  Here are some examples, the median US income is in the neighborhood of $48000 per year, that same position without benefits and safe working conditions can bring $4000 in china, $3900 in the Ukraine, $1250 in India, and $233 in Africa per year.  This is the reason why many companies have decided to open new offices in other countries or simple offer business to foreign companies to supply those services, Call centers, IT services, accounting, manufacturing and even research and development projects.
    Advocates of the program will simply call you a racist or a bigot if you disagree with them and the American government will sit on their hands and do nothing until it’s actually too late.
    But the real fact of the matter is that off-shoring is slowly deteriorating the American way of life and destroying American government and infrastructure simultaneously.  In fact off-shoring is another term for out-sourcing the American consumer.
    Let’s review some facts.
    Since around 1992, US companies have aggressively started off-shoring American jobs.  The breakdown, although not really actually tracked by any agency of the government but has been tracked by some other organizations are estimated as follows:
    Approximately 200,000 US jobs have been off-shored since 1992 which accounts for 2-3 million jobs total depending on whose numbers you refer to. 
    Losses to the US economy.
    Based upon the 200,000 jobs per year lost in the US are some astonishing figures for the last ten years:
    Over $73,600,000,000.00 loss in total buying power for US families with 1 wage earner over the last ten years and a net loss of $18,400,000,000.00 in taxes.
    Please think again if you think we should stop the extension of unemployment, in any system there will always be abusers.  Does that mean we should destroy the lives of the 80% becaus eof the abuse of the 20%, or should we refine the process?

    • Companies that have to compete against foreign importers that can outsource to low labor cost countries or are themselves based in those countries won’t last very long against that competition.
      For many industries, more domestic jobs are preserved by off-shoring.  You can’t interfere with off-shoring unless you’re willing to interfere with importing to balance it.  Assuming your goal is to preserve those industries.  If your goal is to kneecap those industries, then you’d most definitely want to block off-shoring while doing nothing about importing.

    • Scott, I hear about the problems with off shoring.  But, no one seems to talk about if bringing that work back to the US and paying US prevailing wages would result in imports from foreign countries flooding the US markets and killing those businesses that brought the work back.  Second, would that make out exports too expensive to export?
      I know Dell toyed with the idea of asking PC buyers if they would pay an extra $100 for US based phone support.  The answer was “no”.
      So, I understand the problem of sending jobs overseas.  I just don’t know if we can successfully bring them back and still be competitive.

      • I loved the story of the software engineer who outsourced his own job to India without telling his boss. He worked from home and managed his own employee in India. Then he picked up some other side jobs and hired some more Indians…brilliant.

      • I know Dell toyed with the idea of asking PC buyers if they would pay an extra $100 for US based phone support.  The answer was “no”.

        Dell support sucked when it was still US based

    • Where is it written that anyone, anywhere (except members of Congress, apparently) has a lifetime guarantee on a job or that you will never have to learn new skills?  And where is it written that you’re not permitted to live below your means, to sock away excess cash, so that you have the ability to weather a storm when it almost certainly will come?  I’m sure this sounds harsh, but it’s also true.

  • [T]he fact that some seasonal landscaping workers choose to stay home and collect a check from the state, rather than work outside for a full week and spend money for gas, taxes and other expenses, raises questions about whether extended unemployment benefits give the jobless an incentive to avoid work. [emphasis mine – dj505]

    Gas – artificially expensive due to taxes, and likely to become MORE expensive when / if more “environmental protection / global warming” laws go into effect.

    Taxes – Self-explanatory.  When a worker loses up to half of his income to taxes, it tends to (ahem) dampen his enthusiasm for working.

    Other expenses – Such as food (which is taxed), supplies (taxed), safety and health regulations, transportation, etc. 

    We have a picture of how the government is KILLING our economy by inflating the cost of labor, raw materials, and every other thing needed to have a productive society.  There is a tipping point beyond which it is prohibitively expensive to work or even run a business.  Michigan should serve as a warning for the rest of the country, but, sadly, we don’t seem to be much into learning not to play with matches until AFTER we’ve burned down our house.

    Scott in Dallas relates his personal story.  I think we can all sympathize / empathize (I, too, have been unemployed in my day).  It is worth considering why this recession is so bad, why unemployment is so high and, more importantly, likely to remain so.  I’d say that the most immediate cause – uncertainty about coming government mandates and regulation – has been discussed at considerable length here.  I also suggest that unionization coupled with the welfare state has driven up the cost of labor to levels that create longer periods of unemployment and drive US companies to try to do more with fewer workers (I believe that the US workforce is the most productive in the world), move off-shore in search of cheaper labor*, or some combination of both.  A few years ago, the cry was “jobs that Americans won’t do”.  It was more accurate to say, “jobs that Americans won’t do FOR THE PAY”.  We’ve succeeded in pricing our labor right out of the market, with the result that jobs are more scarce and employment more tenuous.


    (*) As a personal anecdote of my own, I’ve seen the physical evidence of industry following cheap labor.  I live in North Carolina, where dying or dead textile mills dot the landscape.  In a previous job, I had to visit our company headquarters in Massachusetts, where similar (though older) dead mills dot the landscape.  The industry started in Massachusetts and, when cheap Southern labor became available and desirable, moved here.  When cheaper labor became available in Red China, the industry moved there.  I am given to understand that textiles are started to move out of Red China to Latin America and SE Asia, so it may be that the landscapes in Lowell, Mass., Greensboro, NC, and various cities around Red China will look very imilar before too long.

    • Scott, I grew up in Lowell Mass, I still live in the area, and yeah, the city is still filled with dead and vacant mills.
      Enterprising contractors have tried to “Condo-ize” the mills into office space and living quarters, but with all the High-Tech jobs going, going, gone (Digital Equipment Corp, Raytheon, Wang, Apollo, NCR, Boroughs, Compugraphic, et. el) there is no money to buy them, so there they sit, half-finished.
      It’s a scene right out of “Atlas Shrugged”.

  • Bruce, I must disagree with your premise that this was “unintentional”… This is classic “Cloward – Piven Strategy”
    EVERY unemployed person I’ve talked to in the last 12 months has told me they have turned down work; Every-Single-One! this implies: the bastards are winning…