Can Unemployment Insurance Stimulate the Economy?
Unemployment insurance benefits are often justified on the grounds of economic stabilization and stimulus. The Economic Policy Institute continues to advocate for extended unemployment benefits, claiming that: Unemployment insurance not only helps workers and their families during a time of need, but it also helps the economy. When workers become unemployed during an economic downturn, people have less money to spend on consumer items, which further hurts the economy. Unemployment insurance puts money in families’ pockets, and when they spend it, the economy gets a boost. [1] This special-interest advocacy fails Economics 101 on three counts. First, an individual’s consumption behavior is widely known to follow his or her lifetime income path, not temporary income swings. Second, this simplified Keynesian “demand stimulus” view of unemployment insurance does not fully account for its effects on government finances. Third, the argument assumes the economy needs stimulating, which defies
