Last week in a legislative briefing Speaker of the House Nancy Pelosi (D–CA) stoked the unemployment insurance (UI) debate by stating that unemployment checks are the fastest way to create jobs.
Let me say that unemployment insurance… is one of the biggest stimuluses (sic) to our economy. Economists will tell you, this money is spent quickly. It injects demand into the economy, and it’s job creating. It creates jobs faster than almost any other initiative you can name.
Given that a similar debate over extending federal unemployment benefits may also be brewing in the U.S. Senate, the negative effects of such legislation can’t be ignored. As noted by William Beach, Director of the Center of Data Analysis at The Heritage Foundation, extending benefits over the 26 week mark:
Changes the behavior of people who are unemployed. They don’t look for work as much as they otherwise would be. If you have got that 26th week looming ahead of you, all the academic studies show that you go out and you really begin to make an active job search.
While Conservatives believe that temporary unemployment benefits are needed, extending the benefits up to 99 weeks, as proposed by some on the Left, would clearly come with a major economic cost.
Speaker Pelosi also stated that UI injects demand into the economy, because struggling families spend, rather than safe, the money they receive. However, academic research shows that only 55 cents of every $1 in benefits gets spent, as unemployment benefits discourage spousal work. Unemployment benefits have been handed out for two years now and there still remains a jobs deficit of 7.4 million.
According to Heritage Foundation Senior Fellow J.D. Foster, the Obama Administration has failed to create jobs because their assumption that deficit spending can increase demand in an economy is wrong. As Foster notes, the answers for job creation are simple: “Obama should call on Congress to forego all tax hikes,” and “get busy reversing the federal spending surge to get the budget deficit under control.”
James Falkner is a member of the Young Leaders Program at the Heritage Foundation. For more information on interning at Heritage, please visit: http://www.heritage.org/about/departments/ylp.cfm