Unemployed Americans Are Miserable

Phila Unemployment Project

By Danny Vinik

For much of the year, congressional Democrats have tried to convince their Republican counterparts to pass an extension of long-term unemployment benefits, arguing that failure to do only exacerbates the pain of the long-term unemployed. A 2012 paper dug up Tuesday by the conservative American Enterprise Institute’s Andrew C. Quinn makes that case more convincingly than ever.

The paper, by Stanford sociology professor Cristobal Young, estimated the effects unemployment has on happiness, in some cases when the newly unemployed received UI benefits and others when they did not. The results are clear: Unemployment benefits make unemployment easier.

This graph shows that unemployment benefits alleviate nearly a quarter of the loss in well-being that accompanies loss of a job.

But that’s not how Quinn characterized it.

“Unemployment benefits merely take a little bit of the edge off the happiness downdraft from being laid off,” he writes. “To be sure, the financial help cuts back on some stress at the margins. But just as clearly, involuntary idleness brings a massive psychological cost that mere money can hardly touch.”

Quinn is arguing that a job’s effect on happiness is more than monetary: If a person making $50,000 a year lost his job, but still received $50,000 per year anyways, his happiness would decline even though his earnings stayed the same. But Quinn overstates his case here. Unemployment benefits don’t replace a person’s wages dollar-for-dollar. They replace about half of them, although the amount can vary widely by state. In other words, if a job’s effect on happiness were purely monetary, unemployment benefits would only restore a person’s happiness to half its previous level.

But Quinn’s point is well taken. Even if unemployment benefits restored a person’s full wages, they would not restore their happiness. As Quinn notes, this is further evidence against the Republican position that unemployment benefits discourage work. “[The] results suggest that laid-off Americans who are cashing unemployment checks are still miserable and would vastly prefer to be working,” he writes. Add this to the long list of evidence that unemployment insurance largely doesn’t cause workers to forego jobs and mooch off the government.

Thus, the debate over extending UI should be about whether it’s worth the money, not whether it motivates people to look for work or stay home. A full year extension would have cost $25 billion. The Senate deal on UI, which included a partial spending offset, cost just $9.7 billion. (The federal government spends around $3.5 trillion every year.) That seems like a small price to pay for helping out a million-plus of the hardest hit Americans.


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