How to Keep Workers Unemployed

Another 99 weeks of jobless insurance won't create more jobs.

Click here to read this WSJ editorial, 12-12-2013. Excerpts:

"In Indiana and the Virgin Islands, the tax will rise next year to 1.8%, or $84 more per worker. In 12 other states the tax rises to 1.2%, or $63 more per worker. This may not seem too burdensome, but it comes on top of state unemployment-insurance taxes that can exceed $3,000 per worker in states like Minnesota, according to the Tax Foundation. The tax is "experience rated" by the feds, meaning that firms in industries with high labor turnover rates—such as hospitality, restaurants, construction and trucking—pay a higher tax. 

Some economists believe the unemployment insurance tax is too low to discourage firms from hiring. But if that is the case, why did Mr. Obama enact a payroll tax holiday in 2011 and 2012 as incentive to increase hiring? If lower payroll taxes increase employment, then higher payroll taxes must curtail it. Economist Casey Mulligan of the University of Chicago has found that payroll taxes have a "persistent negative impact" on hiring and real GDP. 

Alan Krueger, President Obama's former chief economist, coauthored a 2008 study reviewing the amount of time that unemployed individuals in different states and countries spent looking for a new job and found, among other things, that "job search is inversely related to the generosity of unemployment benefits." Other studies have found that laid-off workers ineligible for unemployment benefits spend more time looking for a new job than those who get checks.

Some smart states have begun to resist Uncle Sam's not-so-free unemployment benefits and loans. While the feds have financed longer unemployment benefits, states in return have had to agree not to cut recipients' weekly payments. North Carolina, for example, was criticized as heartless for scaling back benefits earlier this year. But by doing so Raleigh avoided a payroll tax hike."