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Unemployment Insurance vs Jobs

"[Several bozos] argued a proposal to add $600 per week to unemployment insurance for up to four months — a core provision of the near-final legislation — could encourage companies to lay off workers and Americans to stay unemployed. [They] filed an amendment to the bill Wednesday evening [which] says weekly unemployment aid may not 'exceed the amount of the individual’s average weekly wages for an appropriate period' prior to having received it."

OK, let's do some accounting to demonstrate why this is stupid. In accounting, you can value an asset as the discounted sum of its cash flows. Let's say that unemployment insurance gets you $2,500 a month, and working gets you $2,000 a month. Unemployment insurance lasts for four months. The average employee spends four years at the same job. If we assume an even distribution, that means the average employee will remain at their job for two more years, or 24 months.

If we assume a discount rate of 2% (to match inflation), then the value of the four months of unemployment insurance is $9,958, and the value of the 24 months of employment is $47,014. Why on earth would anyone give up $47,014 in exchange for $9,958?

"But wait!" you say. "What if they just go and get another job after the unemployment insurance runs out?" They could do that, but it will take them some time to get that job. Especially since the economy is imploding and unemployment is expected to rise to somewhere in the region of 10-20%.

Let's say that it takes them 6 months to get a new job (which is extremely optimistic, given the circumstances). Using the above discount rate, that would give us $11,930 in lost wages from those six months. It's still not worth the $9,958 from the unemployment insurance.

Long story short: Unemployment insurance runs out. Jobs don't. It's a really bad idea to leave a job, which will continue to produce income for as long as you work there, in order to get unemployment insurance, which will eventually run out. This is especially the case if we're on the brink of a recession.

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