Unemployment, Unemployment Benefits and Severance Packages: A Modest Thought Experiment
by Mike Kimel
Most economists believe that unemployment benefits increase the unemployment rate. The idea is that even having a relatively small income coming in (from unemployment) can encourage people to stay jobless just a little while longer. And no doubt there are people who play the unemployment compensation game fairly well.
Now, consider severance packages. These days they aren’t uncommon. There are differences in how different states treat severance packages, but as I understand it, in general, if a jobless worker received a severance package equivalent to X weeks of pay in lump sum form, that makes the worker ineligible to receive unemployment benefits for what would otherwise be the first X weeks worth of claims. Which, would imply that for an unemployed worker, there is zero incentive to be jobless during the first X weeks of unemployment, but a jump in the incentive to be jobless beginning in week X + 1. One presumes, therefore, a greater probability of people turning down proffered job offers in weeks X-1 or X (when unemployment benefits are imminent) than in week 1 or 2 (when there is a much longer wait to get unemployment benefits).
If this solves the problem of anyone looking for a thesis topic at a Freshwater school, your thanks are all the payment I need but I do appreciate cookies.
If your post even made sense, one could comment on it. Unfortunately, it does not.
Most workers get NO severance pay after being sacked.
“One presumes, therefore, a greater probability of people turning down proffered job offers in weeks X-1 or X (when unemployment benefits are imminent) than in week 1 or 2 (when there is a much longer wait to get unemployment benefits).”
Shouldn’t that read “preferred” not proffered? I think proffered would work if you changed the sentence structure, but not sure if that is a spelling error or not.
Also,
I am confused at what your trying to say. Are you saying that you agree that unemployment benefits encourage unemployment, or ar you saying the opposite?
tonysam,
I do not know the percentage of people who get severance packages. I merely noted that these days they aren’t uncommon. Twelve seconds on google yielded this from CNN back in 2008 (http://money.cnn.com/2008/11/10/news/economy/severance_packages/index.htm):
“According to human resources association WorldatWork, 31% of employers offer one week’s salary per year of service, while 20% provide two weeks salary for every year served. But 47% of respondents had their own formula for determining severance, which could also factor in the economic climate, the industry and the individual.”
As to the word sacked – if you mean fired – I assume you are correct. If you mean laid off, the percentage appears to be higher.
Darren,
I mean proffered.
As to the meaning of the post, it was just a modest though experiment for people who believe some orthodox things.
Mike
due my recently being instructed on the definition of unemployment i am in a position to say that those people who are “encouraged to stay jobless” are not unemployed. you see, by definition, the most economists say that to be unemployed you have to be willing to take any job offered to you at any wage, and that therefore unemployment is impossible.
on the other hand, i guess that the most economists have never been unemployed… unlike the poor working ordinary honest economists (who are not the most)… so they would not understand why it is that a person fresh out of his job as, say, an economist, might not take the first job as a minimum wage truck driver offered to him, and might use some of the unemployment insurance he paid for (remember that the most economists say that the employers share of Social Security is “really” the employees money, because if he didn’t have to pay the jobs killing SS tax, the employer would certainly give the money to the employee, so by the same logic, the if the employer did not have to pay the unemployment tax, he would certainly give it to the employee, therefore the employee has paid for those unemployment benefits) so our not by definition unemployed worker might quite reasonable wait for a better offer, just another part of the non accelerating inflation rate of unemployment.
it is interesting, however, that all these people who prefer unemployment benefits to actually having a job seem to increase in numbers at exactly those times when businesses are not hiring.
and spend their time standing in line for employment interviews or unemployment interviews.
must be nice to be a most economist and have such a clear definition of things.
now, because I was schooled in the behavior of pigeons in a box by B.F.Skinner I am prepared to admit that if I have eight or eighty weeks of unemployment insurance coming, I might not be up at 7:30 the first morning combing the want ads, typing resumes, begging for interviews, or applying at the local sawmill. as time goes on I am more likely to be doing these things.
But is this what “we” want? A country where everyone is so desperate they have to take the first job they can get, and can’t afford to look a little longer… and exhibit normal schedule induced behavior patterns… for a “better” job… perhaps even a more “economically useful” job?
Kind of reminds me of the scene in Schindler’s List where the Nazis are trying to find the best and highest use for their new labor supply… jews kicked out of their old jobs… and upon hearing that one elderly gentleman is a professor of Romance literature, assign him as “laborer.”
the concept that we will end the unemployment problem by forcing non-workers to take the next job at the whatever pay the employer chooses to offer… is a nice way of letting us know that “all workers are created equal,” just less equal than bosses or their most economists.
they get away with this because they have highly paid non partisan expert
liars trained to say things so cleverly that they sound not only plausible but “wise.”
and then people like… you know who you are… can spend the rest of their lives chanting
one oops “four legs good two legs bad”
until it behooves the boss to teach them to say one… oops “four legs good, two legs baa-der.”
coberly,
“hey get away with this because they have highly paid…”
Not sure that’s enough of an explanation.
Mike,
The US needs a work ethic, like the Chinese.
If unemployment makes people with PhD (as an example, other qual can be input) take some time to pursue a job in their old profession or skill (a PhD pumping gas might be a less than optimum use of the educational investment) and not want to work at Mc Donald’s look what being rich from Daddy does to the work ethic.
I support an 100% tax on all inheritances because inherited wealth makes son and daughter indolent and not want to go out and be a wage slave.
And if getting bailed out to the tune of 2 plus trillion bucks makes investment bankers whole and not wanting to do something better like joining the Marines and going to Afghanistan, then a 100% tax on all remuneration from banksterism is going to do what eliminating unemployment does for the nation’s work ethic and competing with former Chinese pigherds.
The other view, it is different for the rich they are the elect of calvin………………………
There are a lot of Chinese earning PhD’s.
Mike
enough of an explanation:
feel free to offer your own. i find when explaining the insane, it is sufficient for my purposes to offer insane explanations. my purpose being to get a laugh out of it at least.
ilsm
too true. i believe the chinese work ethic is founded on the prospect of becoming an organ donor when you become what we used to call unemployed…. before most economists taught us there was no such thing.
Actually the severance packages are bundled with an agreement to waive the ability to sue on any equal opportunity baisis. The idea is to pay for not suing. Consider that anyone over 40, a woman etc could sue for discrimination (essentially any but young white males) the company gets itself out of the possiblity of a suit with what amounts to a settlement.
Lyle,
I probably should have mentioned the reason for severance packages in the post. I guess that was an oversight.
I see I’m not the only one whose posts are occasionally misunderstood: http://patriotboy.blogspot.com/2011/08/libislamunistofascists-journalists.html.
Mike
“page not found” one reason why i rarely click on links.
as for not being understood…. i know how you feels.