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Millions Paid for Not Working

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The Bureau of Labor Statistics (BLS), part of the U.S. Department of Labor (DOL), releases its monthly jobs report on the first Friday of every month. The jobs report is perceived as a gauge of the health of the economy. The BLS also issues a weekly report of unemployment insurance claims.

According to a November 3 BLS “news release” concerning the employment situation in October,

Total nonfarm payroll employment rose by 261,000 in October, and the unemployment rate edged down to 4.1 percent, the U.S. Bureau of Labor Statistics reported today. Employment in food services and drinking places increased sharply, mostly offsetting a decline in September that largely reflected the impact of Hurricanes Irma and Harvey. In October, job gains also occurred in professional and business services, manufacturing, and health care.

That is the lowest the unemployment rate has been since December of 2000, and is down from a high of 10 percent in October of 2009.

But if the unemployment rate is 4.1 percent, that means that millions of Americans are not working. According to the November 8 edition of “The Economics Daily,” which is published each business day by the BLS,

The number of unemployed people decreased by 281,000 to 6.5 million in October 2017, and the unemployment rate edged down to 4.1 percent. Since January, the number of unemployed has decreased by 1.1 million, and the unemployment rate has declined by 0.7 percentage point. The number of long-term unemployed (those jobless for 27 weeks or more) was 1.6 million in October and accounted for 24.8 percent of the unemployed.

Some of the millions of Americans who are not working are receiving unemployment benefits. According to a November 9 BLS “news release” that provides data concerning unemployment insurance weekly claims,

In the week ending November 4, the advance figure for seasonally adjusted initial claims was 239,000, an increase of 10,000 from the previous week’s unrevised level of 229,000. The 4-week moving average was 231,250, a decrease of 1,250 from the previous week’s unrevised average of 232,500. This is the lowest level for this average since March 31, 1973 when it was 227,750.

The advance seasonally adjusted insured unemployment rate was 1.4 percent for the week ending October 28, an increase of 0.1 percentage point from the previous week’s unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending October 28 was 1,901,000, an increase of 17,000 from the previous week’s unrevised level of 1,884,000. The 4-week moving average was 1,895,250, a decrease of 750 from the previous week’s revised average. This is the lowest level for this average since January 12, 1974 when it was 1,881,000. The previous week’s average was revised up by 250 from 1,895,750 to 1,896,000.

Confused? Let me put it in plain English for you: Millions of Americans are being paid for not working — 1.9 million of them.

That is because of the DOL’s Unemployment Insurance (UI) program that provides “unemployment benefits to eligible workers who become unemployed through no fault of their own, and meet certain other eligibility requirements.”

The mechanics of unemployment compensation

The federal government imposed an unemployment program on the states by means of Titles III, IX, and XII in the Social Security Act of 1935 and the Federal Unemployment Tax Act of 1939 (FUTA). The Supreme Court case of Steward Machine Company v. Davis (1937) upheld the constitutionality of the unemployment compensation provisions of the Social Security Act of 1935. The DOL oversees the UI program and sets broad guidelines for coverage and eligibility, but the program is administered and mostly funded by the states, which vary considerably not only in the amount of taxes they collect to fund the system, but also in how they determine benefits and eligibility.

Unlike payroll taxes, which are borne equally by employer and employee, unemployment taxes are paid solely by employers. Three states (Alaska, New Jersey, and Pennsylvania) levy an additional unemployment tax on employees. A federal unemployment tax of 6 percent is imposed on employers on the first $7,000 of taxable wages paid to each employee during a calendar year. Each state likewise assesses employers an unemployment tax that ranges from a maximum of 5.4 percent in ten states to a high of 12 percent in Wisconsin on a wage base the ranges from $7,000 (Arizona, California, Florida) to $45,000 (Washington). Employers generally report their state unemployment tax by filing quarterly state unemployment tax returns.

Because the FUTA allows an employer to claim a credit against his federal tax liability as high as 5.4 percent for payment of state unemployment taxes, the effective federal rate is actually 0.6 percent, which results in employers’ paying annually for each employee an unemployment tax of $56 to the federal government.

The maximum monthly unemployment benefit for a person with no dependents ranges from $235 in Mississippi to $742 in Massachusetts. As long as various eligibility requirements are met, unemployment benefits can generally be collected for as long as 26 weeks. Since the Tax Reform Act of 1986, unemployment benefits, unlike other social-welfare benefits, must be included in a taxpayer’s gross income.

The problems with unemployment compensation

The UI program is compulsory. It forces employers to participate even if they or their employees don’t want to. Having private unemployment insurance doesn’t even enable one to opt out of the government’s UI program. All insurance should be both private and voluntary.

The UI program is unconstitutional. The federal government has been given no authority under the Constitution to institute an unemployment compensation program or force the states to maintain one — regardless of what the Supreme Court says.

The UI program is welfare. The amount of compensation received by an unemployed worker has no relation to the amount of tax paid in by his employer. One’s assets and net worth are irrelevant in determining eligibility for benefits. No community service is required to receive benefits. Money received from the government that is not the result of wages, a contract, or a tax refund is welfare just like food stamps, Head Start, TANF, WIC, SSI, LIHEAP, SCHIP, and subsidized housing. It is incredibly inconsistent to support government unemployment benefits and at the same time oppose other forms of welfare.

The UI program merely redistributes wealth from one American to another. It simply transfers income from Americans who work to Americans who don’t.

The UI program is an illegitimate function of government. It is not the job of government to “help” people, provide a “lifeline,” maintain a “safety net,” dispense welfare, transfer income, or offer insurance.

The UI program pays people for not working. Not because they can’t work, but because they don’t work. Unemployment compensation provides a disincentive to work. Once it is accepted that someone is entitled to receive cash from the government for 26 weeks because he is not working, no logical argument can be made against continuing unemployment benefits indefinitely.

Not only should the government not provide unemployment insurance, the Bureau of Labor Statistics and the Department of Labor shouldn’t exist in the first place. All statistics gathering, job training, and unemployment insurance should be left to the free market.

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