Why It Is Stupid to Cut Unemployment Benefits Now

     It looks as though extended unemployment benefits are going to expire at the end of December, and 1.3 million people will suddenly lose their lifeline. This loss of income will do great harm to those people and will also damage the communities where they live. The income they receive is spent at local merchants and supports both profits and jobs.  So, why is their income being cut off? Why is such a harmful policy supported so widely?

      One reason is probably the hyper partisanship in Washington. Some Republicans will not agree to anything that is supported by the Democrats, and that may account for part of the problem.  Another reason is fear over the national debt. People are worried that the government is spending too much money, and they want to cut wherever they can. However, cutting unemployment benefits will make the problem worse, not better. Our government can pay its debts only if our economy grows, and our economy can grow only if people have money to spend. Cutting unemployment benefits prematurely will depress the growth of our economy. It seems obvious that we should not try to solve our deficit problem by doing things that will make it worse.

     A third reason for this misguided policy is the view stated recently by Sen. Rand Paul that extending unemployment benefits does workers a disservice by encouraging them to remain unemployed.  Those who hold this view are afraid that some people will think to themselves, “Why should I get a job when the government will pay me for doing nothing?”  These lazy people will raise the unemployment rate artificially because they are not really looking for work. People are counted as unemployed workers who are eligible for benefits only if they are looking for work. So, those who prefer to live on their benefits must pretend to be looking for work and therefore, they raise the unemployment rate artificially. However, an article in Business Insider  suggests that the evidence for a large effect of this kind is not convincing. 

     Moreover, anyone who has ever been poor or who has worked with poor people knows that most work very hard to sustain their precarious economic lives. They hold down two or even three jobs to make ends meet.  In addition, many of the currently unemployed are people who held jobs for many years. Their personal identities and social statuses were closely linked to their work. They were proud of their ability to provide for their families. When the crash of 2008 yanked the rug out from under them, they were devastated, and the suggestion that they have suddenly become layabouts who prefer to live on a government dole that averages only $330/week is not very convincing.

     However, unemployment benefits undoubtedly do affect the wage level at which people are willing to accept jobs. $330 for a forty-hour week comes to $8.25/hour, which is about 14% higher than the federal minimum wage of $7.25/hour, and it is not unreasonable to suppose that for many people, the pride that comes from holding a job will not outweigh the fact that a person who takes a job at the minimum wage will be poorer than he was when he was receiving unemployment benefits.

     It is widely recognized that that the current minimum wage is too low. In fact, it is lower in real terms than it has been in many years. Interestingly, the people who oppose raising the minimum wage are often the same people who oppose extending unemployment benefits, and this conjunction can help us to understand what underlies their political positions.

     What do these two positions have in common? The answer is that they tend to drive down wages. If people are desperate enough, they will take jobs at any wage. The politicians of the radical right know that if they can end unemployment benefits and hold the line on the minimum wage, a moderate level of inflation will cause their big donors’ labor costs to fall and fall and fall. It is not too much to say that the goal of these policies is to drive down wages and thereby hasten the process by which the wealthy few enrich themselves still further by exploiting the poverty of their neighbors.

     If this policy is successful, it will hurt not only the unemployed but also many small businesses and their employees unless the economy grows much more rapidly that most economists are predicting. Businesses can be successful only if they have customers. If we allow the American people to become impoverished, their consumption will no longer sustain the prosperous, local businesses that they sustain today. Many small businesses will fail, and their workers will lose their jobs, thus swelling the ranks of the unemployed and driving wages down still further.  Whole communities will become poorer, and they will be unable to sustain the educational systems that provide opportunities to individuals and educated workers for businesses.  Large companies will look overseas for workers and for markets. So, they and their shareholders will be just fine, but the United States of America will become a poorer country. Is that the country we want to live in?  Is that the country we want to pass on to our grandchildren?