Tuesday, November 22, 2011

Limited Marginal Economic Impact Of Unemployment Insurance

My comment on Rortybomb blog, "Eight Things We Know About Extending Unemployment Insurance" by Mike Konczal:
Unemployment is not a means tested program. As such, some of unemployment payments substitute for spending from savings (including IRA’s 401k’s, etc.), asset sales (stocks, bonds, extra car, jewelry, vacation home, collectibles, etc.) of the unemployed person, his/her household members, relatives or friends.

The marginal impact on spending of an extra $44 million of unemployment payments due to the above substitution effect will be less than the full amount of benefits.

Additionally, there are other government programs for the needy unemployed, such as food stamps, Medicaid, and accelerated Social Security for those over 62 years of age, etc.

Extended unemployment payments can easily have close to a zero marginal impact on the economy if they mostly substitute for other available funds and other government benefits.

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