Will extended unemployment benefits help or hurt the employment situation?
December 20, 2010
MoneyRates.com has been tracking developments in the job market, because of the impact employment could have on bank interest rates. The tax deal President Obama signed on Friday was intended to help the unemployed--but could it be counterproductive for the job market itself?
Employment holds the key for CD, savings, and money market rates
Employment may be the single most important economic variable right now. Consumer confidence could give the economy a little push in the right direction in the fourth quarter of 2010, but if spending growth is based on confidence alone, it won't be sustainable. In the long run, spending growth must be backed up by income growth, and rising employment would provide the impetus for that income growth.
Even the best CD rates, savings account interest rates, and money market rates have been victims of the economic slump. They are unnaturally low, and banks won't see any particular reason to raise them until the economy is strong enough for lending to become more profitable. In other words, a rise in deposit interest rates would come at the end of a chain of events that starts with rising employment.
Disincentives for the unemployed?
As part of last week's tax deal, unemployment benefits were extended--but with a catch. Maximum unemployment benefits only apply in states where the unemployment rate has been higher than 8.5 percent. Benefits are especially limited in states where the unemployment rate has been less than 6 percent.
One of the most striking things about today's unemployment figures is the wide disparity among the states. Five states have unemployment rates above ten percent; five states have unemployment rates below six percent.
Given this disparity, the logical thing would be for some people from the high-unemployment states to move to the low-unemployment states. Unfortunately though, the new rules on unemployment benefits may create a disincentive to do that. Why would a person relying on unemployment benefits move to a state where those benefits might be cut off sooner?
The tax deal is not only a masterpiece of fiscal irresponsibility, but its unemployment benefits seem also to be an example of misguided micromanagement.
