As unemployment continues to rise, the question of extending the maximum term of unemployment benefits keeps coming back. Expected effects of the economic stimulus passed last fall always were dubious. Now, for most households, the stimulus effects of the $600 per capita payments are being swept away by higher gas and food prices.
It is an election year. Politicians want to be seen doing something and are talking about additional anti-recession measures, so we may see more legislation before Election Day. In the first stimulus package, Democrats wanted to extend unemployment benefits, normally limited to 26 weeks, by another 13 weeks. The Bush administration opposed this, along with some Republicans in Congress, and it was deleted from the final version. Last week the House passed a 13-week extension, but the measure’s ultimate fate was uncertain.
Extensions have been enacted several times in the past, but always raise the same question: Is it fair to limit unemployment benefits to 26 weeks most of the time, but extend them to 39 or even 52 weeks at other times?
In considering this question, it’s helpful to understand a distinction that students learn in introductory philosophy and economics courses — that between horizontal and vertical equity.
The core of horizontal equity is to “treat equals equally.” If you have two employees and give one all the dirty jobs while favoring the other with plum opportunities, you are being unfair. If you have two teenage children, otherwise equal in grades and behavior, but let one use the car any time he or she wants while refusing it to the other, you fail the test of horizontal equity.
Vertical equity translates as “treat unequals unequally.” If you have a 6-year-old child and a 17-year-old, making them both go to bed at 8 p.m. is not necessarily fair to the teenager. And, at least for most people, making a widow eking out a bare existence on Social Security pay exactly as many dollars for local government as a wealthy economics professor also violates the principal of vertical equity.
Those favoring uniform unemployment benefits see the issue as one of horizontal equity. Why should one worker who is laid off get 26 weeks, while another who gets laid off a year later get 39? Treat everyone the same, give everyone the same benefit, they would say.
Those favoring extended benefits make a vertical equity argument. Finding a job when the unemployment rate is 3 percent, they argue, is vastly easier than finding one when it is 8 percent.
When the economy is booming and jobs are plentiful, unemployment benefits often serve to facilitate a relatively painless job change. It may, in effect, make it easier for someone to take a “mental health” few weeks off before starting their new job. In good times, there are few worries that a job search won’t be successful. Nor is the benefit payment the last defense against hunger or eviction.
But when unemployment rates are high, and particularly when there have been mass layoffs in one skill or sector, the difficulty of finding a new job can increase by a whole order of magnitude. The employment ads section is thin, while hundreds of others with similar skills and work histories are vying for the same few openings. It is a different situation, unequal with the first, and therefore fairness consists of giving longer benefits.
Where one comes down on this depends on values and political views. Given the electoral climate, don’t be surprised if benefits do get extended before November.
© 2008 Edward Lotterman
Chanarambie Consulting, Inc.