Would a Government Signing Bonus Create a Million Jobs?

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There's already a financial incentive to find a job. It's called ... a job.

average duration unemployment.pngUnemployment ain't what it used to be. In the recessions of the 1970s and early 1980s, the typical jobless person spent about four to five months out of work. Then he got a job. In this downturn, the average unemployed person spends almost 40 weeks, or 9 months, on the sideline.

Some people blame unemployment insurance for the spike. In the absence of extended benefits the unemployment rate would probably be a bit lower. How much lower is the big question. Economist Robert Barro said three percentage points. The San Francisco Fed said 0.4 percentage points.

I'm guessing Todd Buchholz, former economic adviser to President George H. W. Bush, believes the former. In his cover story for the Washington Post's Outlook section, he argued that if we turned unemployment benefits into a signing bonus, we could push people back into the workplace:

After 26 weeks of receiving benefits, a job-seeker would be eligible for a "signing bonus" equal to three additional months of benefits if he or she took a full-time job. It wouldn't matter whether the job paid more, less or the same as the worker's old one.

After 39 weeks, weekly benefits would expire, but the job-seeker would be eligible for a two-month signing bonus if he or she took a job. This bonus opportunity would expire after 52 weeks.

This plan is right about incentives but wrong about the economy. That is, Buchholz is right that paying people to work is better than paying people not to work. But he's wrong to think his idea would make much of a difference.

There is already a clear financial incentive to get a job. It's called ... a job. Unemployment insurance isn't Easy Street. It typically pays a third of a middle class worker's former salary. In Virginia, that's $370 a week. That's not enough to discourage millions of people from taking a low-paying job. Quite the opposite, McDonald's heralded national hiring day in April accounted for half the month's net jobs created. Meanwhile, nearly three years after Lehman's collapse, job openings are still weaker than at any point in the last recession. That's not unemployment insurance's fault.

openings and hires.png

In order for Buccholz's plan to be "worth it," it can't lead to merely a handful of new positions. It has to bring down unemployment by more than a percentage point -- something along the lines of a million new jobs. We don't know that turning jobless benefits into a bonus would create a million jobs. We do know that it would throw millions of struggling lower middle class families onto the brink of bankruptcy. We also know that estimates from the Congressional Budget Office and Moody's Analytics find that unemployment insurance is the most effective bang-for-your-buck stimulus out there. Jobless benefits don't just support the unemployed; they also pay bills, and circulate borrowed money, and, multiplied across an economy, create jobs.

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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