The number one song in America is "Ninety-nine Unemployment Checks in the Mail" (sung to the tune of "Ninety-nine Bottles of Beer"). The catchy lyrics, written by Rep. Nancy Pelosi, got much more air play than traditional holiday music during the past few weeks.
Before long, West Virginia lawmakers will be singing Nancy's song and raising unemployment compensation premiums. The popularity of "ninety-nine weeks of unemployment checks" has drained the fund (again). For the second time in two years, politicians will raise premiums rather than cut benefits, arguing that you cannot put a price on compassion.
Extending unemployment benefits to 99 weeks may seem compassionate, but creating a long-term dole is a cruel hoax. Here are some fallacies about the dole.
Fallacy 1: The unemployed are required to accept suitable employment offers; they may reject unsuitable employment and continue to draw benefits. "Suitable" employment generally means a comparable or better job.
In a recession, the suitable jobs disappear first, e.g., the housing industry is in a deep downturn. If there is less demand for oak flooring, then there is less demand for Appalachian oak lumber. The local sawyer is laid off, as are most sawyers within a 50-mile radius.
There are no suitable jobs for the local sawyer. The sawyer has a choice between working for less money or drawing unemployment. He will probably choose the latter, even though he could earn more money by taking a lesser job because unemployment compensation has been sold as an entitlement similar to paid vacation.
Fallacy 2: Week 100 arrives, and jobless benefits expire. The unemployed worker accepts lesser employment. When he returns to work, he finds out that technology has changed the workplace. When he last worked, he was proficient using Windows XP. Now he has to learn Windows 7 just to get up to speed in this "lesser" job.
Spending two years away from the modern workplace guarantees that one's work skills will deteriorate. Not only does technology change, but so do markets. And in week 100, our unemployed subject very well may accept a job description that did not even exist when he last worked.
Fallacy 3: A middle-aged worker drawing the maximum, or near-maximum, jobless benefit can get by financially. But the worker has lost two of his most productive work years if he takes that route. The worker will not realize the cost of his "two-year vacation" until he reaches his 50s. Then he learns one of life's cruel ironies -- he doesn't have the stamina that he did in his 30s. He also will learn that businesses want to hire 30-somethings but avoid hiring 50-somethings.
This worker also will learn the hard way that the money he saved when he was 30 has grown in value. The money he saves at age 55 will grow very little before he retires.
Fallacy 4: When unemployment premiums go up, there is less money for a business to spend on equipment, facilities, wages and benefits. Politicians don't seem to understand the macro effect of this tax increase. Indeed, politicians seem to have tunnel-vision regarding unemployment compensation premiums as evidenced when Rep. Pelosi declared that unemployment checks stimulated economic development because the unemployed spend all of that money.
There is no economic theory -- not even Marxism -- that says long-term unemployment stimulates a nation's economy.
Fallacy 5: This is the "Atlas Shrugged" effect. Productive, well-run businesses are taxed to pay for these long-term unemployment benefits. Rep. Pelosi's philosophy regarding long-term unemployment benefits reads like a scene out of Ayn Rand's novel. As the novel suggests, you can only bleed the productive businesses for so long before they rebel and move their production to lower cost states or overseas.
Fallacy 6: After the unemployed worker has slept in for three weeks, he has gotten out of the routine of going to work. You cannot measure this effect like you could lost earnings, but most people will lose, or greatly diminish, their sense of self-worth the longer their idleness continues.
The Legislature raised unemployment premiums 50 percent in 2009. We've blown through that money in less than two years. So, will the coming premium increase be even higher?
West Virginia has been down this road before. Some 20 years ago, the state borrowed heavily from the federal unemployment fund. To pay the federal loan back, the state taxed workers and businesses alike for about four years.
Yes, Nancy, unemployment checks do stimulate the economy -- in the worst ways possible.