Friday, October 22, 2010

On the incentives of jobless benefits

Here's an interesting excerpt from an article on jobless benefits' incentive effects:

After Robert Nasuti was laid off as a technology consultant in March 2009, he spent more than a year looking for work in his field. Although the Myerstown, Pa., resident, was making ends meet on his unemployment benefits, he hated not working.

“The wear and tear of being at home, having nothing to do every day, nowhere to go, that’s what really started to wear on me,” he said. “I like to work.”

That’s how he ended up taking a low-paying temporary job as a bill collector for student loans.

“I thought it would be the responsible thing to do,” he said.

He quit after working just one week. He said he was asked to call grandparents who had co-signed student loans and threaten to withhold Social Security payments if they didn’t pay up, he said.

Quitting left him ineligible for unemployment pay. These days, the 26-year-old is working 20 hours a week, for $8 an hour, at a drugstore. He’s living rent-free at his dad’s house but still barely scrapes by.

He now wishes he’d stayed on unemployment and had never taken the bill collector job.

“I regret it every day. It was like a chance that I took, and I thought it was a good route to take, and it just blew up in my face completely,” he said.

The article is remarkably sophisticated on the issue, pointing out one of the more important costs of turning down low-paying jobs to stay on unemployment:
After watching his wife go through a job loss and difficult job search, and then spending six months looking for work himself, Trimm said he felt he couldn’t risk turning a job down, even if the pay was lower than his benefits.

He also worried that the growing gap in his resume would make it harder to get work.
To be sure, there is a tough tradeoff to be made. Should people continue looking as it becomes more difficult to find an adequate job? Or, should they take a pay cut for a job that will certainly leave them with fewer resources than they would have under unemployment insurance? Neither case is ideal, but you can see why some people might prolong unemployment on account of receiving unemployment insurance, even if they like work and think that getting off of unemployment insurance is the responsible thing to do.

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