Not only does jobless compensation make securing work less of a pressing issue, it also raises the cost of luring workers from the sidelines. Indeed, in deciding whether to take on new employment, the unemployed must consider the wage offered through the prism of what will be lost thanks to the cessation of government paychecks.
what’s not visible is how many sidelined workers would in fact be employed minus benefits that create incentives for them not to be. Absent benefits that are delaying wage-demand adjustments, it’s a fair bet that many of the unemployed would be working now, and their work efforts would drive up real economic growth on the way to consumption that would increase GDP even more than handouts presently do.
Secondly, if unemployment insurance were abolished altogether, this would profoundly impact the willingness of the average American to save for a rainy day. Simply put, individual savings would rise in concert with the abolishment of jobless benefits. The positive results of such a development should be very apparent.
Indeed, company formation and the jobs that result are solely a function of delayed consumption on the part of individuals. Increased savings would increase the stock of capital necessary on the way to plentiful jobs. A higher savings rate would create a more vibrant employment cushion amid corporate downsizings that would make the very notion of jobless benefits less of a factor in our economic life.
A pretty good article.
http://blogs.forbes.com/johntamny/2010/ ... y-matters/
