Extending Unemployment Benefits: Incentive Not To Work


I often remark on the powerful effect of incentives.  Lately it’s been with creating an incentive to cross a busy freeway.  My point being that the government can cause perverse incentives.

In the past I’ve mentioned that unemployment benefits create the same condition.  By the nature of paying someone not to work, you create an incentive NOT to work.  At lest on some level.  Further, if the benefit is large enough, the individual is going to create an internal value proposition and will only return to work when that value proposition reaches an inflection point that benefits him.  In other words, no one is going to work for 40 hours for $320 when he can not work for 40 hours and make $335.

For evidence, I wanna share this editorialHat Tip Dan Mitchell

Last year the demand for our construction services, to our delight, was as they say “going through the roof” to a point where were turning down more work than we were accepting. Frustrated that we could not be available to the potential new clients that were calling on us, and simultaneously excited that this was happening to our company, since unemployment had broken the double digits marker. I decided we would grow, work to sign up as much as 40% more in total contracts, and hire up to 12 additional full time employees. Basically take advantage of our good fortune and get a small portion of our community back to work.

The plan was initiated, the additional contracts were signed up and then we set out to hire the employees. Little did I know that attempting to hire the employees needed, which I had thought to be the easiest part, would turn out to be a nightmare if not impossible. I’m sure that reading this you will be almost as surprised as I was directly experiencing it.

My experience: Before 2009 if our company advertised for an open position, on average we would get 20 to 30 applications, interview six to eight of the applicants, and hire one or two, based on the quality and potential of the candidates. This process has been deteriorating dramatically since 2009 and now at the end of 2011 it has completely hit bottom. Of all the applications that we have received this year, when asked why they were seeking a job with us, one out of three answered: my unemployment is running out and I have to go back to work. Earlier this year after I hired two new full-time employees, went through our company’s orientation process, fitted them with our work clothing and booked them to start within a week, they both quit. One called ahead of the start date to apologize but wanted to inform us he would not be coming in because the government had just extended unemployment benefits again. The second one just did not show on his first day and when I called him he said he couldn’t come in now because unemployment had been extended and he was making almost as much as we were planning to start him out with. If this is not frustrating enough to those of us that provide jobs and pay taxes let me give you my last two attempts this year. Both times we advertised in various media at great expense. The first time only seven applicants came in, I set up personal interviews with two for potential hiring, neither of them even showed up. The second time with six applicants, I set up interviews with four, one called in to cancel the interview, one did not even show up, two actually came in, though one was late. To summarize (in case you missed the math) of the last six people that I called for interviews for potential full-time employment only two came with one being late. It is more than frustrating, it’s perverted.

If we are going to insist on providing unemployment benefits, at least reform the process so that the individual has to report to an office, perform community service when waiting for responses and allow for better monitoring.

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2 comments
  1. I couldn’t agree more, unemployment should be a short term tool so that a person can attempt to find work in a familliar field. After the initial run out, it’s time to suck it up, and find something (anything) else that will get you back in the work force.

    • pino said:

      unemployment should be a short term tool so that a person can attempt to find work in a familliar field.

      I can agree to that!

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