The Hidden Cost of Denying Unemployment Benefits

In the debate over unemployment benefits, conservatives often say there are hidden costs to supporting the unemployed. If we pay people to be jobless, they say, we risk encouraging some folks to choose joblessness over a menial, low-paying position. That's probably true at the margins. But there are hidden costs to cutting off unemployment benefits as well.

Consider this statistic, from Peter Orszag at an event in DC called The Future of American Jobs Part II: The number of applications for the Social Security Disability Insurance has increased from an average of 500,000 per quarter in 2006 to 750,000 in 2010. Why? Well, it's unlikely that American disabilities themselves have increased by 50 percent in the last four years. It is more likely that healthy Americans discouraged from the awful job market have sought out disability insurance and collected Social Security money even though they're not actually disabled.

SSDI requires that its recipients be unable to work. Unemployment insurance, on the other hand, requires that its recipients look for work. Like any government program, UI can be gamed, and sometimes it surely is. But the fundamental point holds: If we stop supporting unemployed people with cash, there is a risk that we kick them out of the labor force onto disability insurance, where we pick up the tab by paying for them through SSDI not to work and not to look for work.