Unemployment Benefits and Higher Education
Dec 14, 2010

Unemployment Benefits and Higher Education

I have written previously about the distinction between individual and societal perspectives, and how focusing on each can yield substantially different results. I want to look at two timely examples, unemployment benefits in the US and higher education in the UK, and see how seemingly reasonable considerations for individuals don't necessarily work for societies. Coupled with this discussion is the distinction between social and economic considerations.

Obama's compromise on the Bush tax cut extensions include extending unemployment benefits again. When considered from an individual level, giving unemployment benefits lowers the relative disadvantage of being unemployed and thus acts as a downward pressure on peoples desire to enter the job market. Considering exclusively this individual perspective, one might conclude that giving unemployment benefit extensions would keep the unemployment rate high by giving a relative disincentive to find work.

When we analyze jobless benefits from the societal perspective we get a substantially different result. The non-partisan CBO estimates that if the goal is to create jobs then extending unemployment benefits is the most effective method, dollar for dollar, of doing this - vastly superior to income tax cuts for the rich, incidentally. The reason is simply that giving money to the unemployed is most likely to be immediately spent in the market opposed to hoarded thus increasing consumer spending and hence creating jobs. The point is this: the economic benefits of extending unemployment benefits are very large to a large proportion of people.  So large, in fact, that they trump any worry about creating a relative disincentive to get back to work . The result is intuition that exists at the individual level - extending unemployment benefits going to dampen demand to get back to work - actually lowers unemployment society wide.

This is a purely economic argument, but one can consider the social consequences as well. It is sometimes argued from a largely individual level that the current 99 weeks of unemployment is sufficient as a social safety net and it is perhaps unfair or undeserving for someone to continue to get benefits beyond this. I actually think the opposite, that in an economy with 9.8% unemployment there is significant social value to help those trapped in what is becoming structural unemployment. However, the social case for unemployment benefits is far stronger in the societal perspective when we see that, regardless of whether we feel compelled to give or not give individuals benefits, the net effect of this policy is to booster the jobs market and the economy lifting the quality of life of not only the unemployed but large proportions of the people. In the face of that acknowledgement, the societal perspective demonstrates both the economic and social imperative to continue these benefits.

The case against the UK governments austerity measures that perhaps treble the cost of higher education can be analyzed in a similar way. There are many individual perspectives where one might argue that the added costs are acceptable. One might argue that higher costs of education will not deter those for whom getting an education will  be a positive expected return on investment but deter those who waste their subsidized education partying, dropping out, taking frivolous majors or other such things. I think such individual considerations can be countered on an individual level by showing how this increased cost creates barriers for many individuals. However, the far more compelling argument is at a societal scale where one notices the strong correspondence between raising the costs of education and lowering the education rates, and lowering them disproportionately for the poor. If we accept this result, then we must ask the question of whether higher education rates are better for society at large. This case can be well established that there are considerable links in comparing numerous countries between higher education rates and higher indicators for other aspects of society such as quality of life.

The result is the same as for unemployment benefits; the societal argument is considerably more compelling than the arguments that focus on the effect for individuals. These examples illustrate the pitfalls that can come from exclusively considering individual perspectives.

Thoughts on this post? Comment below!

Share this post:

Tweet It! Facebook Add Feed Reddit! Digg It! Stumble Delicious Follow

Post a Comment

Frequent Topics: