Illinois paid out $266M in improper unemployment insurance payments

Earlier this week in a televised White House address President Barack Obama said, “I can’t name a time where I met an American who would rather have an unemployment check than the pride of having a job.”

But Obama’s statement is contrary to recent statistics released by the U.S. Department of Labor, which show many unemployment insurance, or UI, recipients fail to adequately look for work while receiving benefits, or improperly continue to receive UI despite the fact they have already returned to work.

Department of Labor statistics show the state of Illinois had an improper payment rate of 12.22 percent, or nearly one in eight recipients. These improper UI payments cost taxpayers an estimated $266 million from July 1, 2012, through June 30, 2013.

The largest cause of improper UI payments in Illinois was “work search issues,” which is “the inability to validate that the individual has met the state’s work search requirements.” That means 52.8 percent individuals receiving improper payments in Illinois were not adequately looking for work during the time they were receiving UI payments.

Contrary to Obama’s assertion, many people are quite comfortable receiving unemployment insurance checks and not meeting the requirements to actively search for work.

Perhaps even more alarming is the second leading cause of improper payments in Illinois. Labeled “benefit year earnings,” 28.7 percent of Illinois’ improper unemployment payments stem from when “the claimant continues to claim and receive benefits after returning to work.”

Beyond Illinois’ program implementation problems, the serious flaws with the extended unemployment insurance duration comes from recent modifications to the program. Prior to recession-era reforms implemented in 2008, unemployment insurance generally ran out after 26 weeks. But once emergency measures were put in place unemployment insurance was extended up to 99 weeks in many states.

The below graph from the U.S. Bureau of Labor Statistics shows the recession of 2007-2009 was less severe than the recession in the early 1980s, but “emergency” changes to unemployment insurance program have dramatically changed the behavior of people receiving benefits. Despite a lower overall unemployment rate during the 2007-2009 recession, the long-term unemployment rate was 4.4 percent at its peak compared to a 2.6 percent peak during the 1980s, an increase of nearly 70 percent. This is primarily due to the changes in unemployment compensation policy. Additionally, the overall unemployment recovery post-recession has been much slower.

Another look at this alarming trend comes from the Federal Reserve Bank of St. Louis, which shows a shocking spike in the average duration of unemployment coinciding with the federal unemployment benefits extension starting in 2008.

It should be no surprise that when the government subsidizes long-term unemployment, long-term unemployment rates go up. The long-term unemployment rate is nearly double of any year prior to 2008. This should be a stark warning sign to policymakers that something has gone terribly wrong.

The unintentional consequences of promoting long-term unemployment insurance will be felt by individuals for decades to come. Studies show numerous negative consequences for people whose unemployment durations exceed six months.

An Urban Institute study notes, “The long-term unemployed also tend to earn less once they find new jobs. They tend to be in poorer health and have children with worse academic performance than similar workers who avoided unemployment. Communities with a higher share of long-term unemployed workers also tend to have higher rates of crime and violence.”

When Obama says, “Voting for unemployment insurance helps people and creates jobs. And voting against it does not,” he assumes government’s unemployment policies do no harm to the people it intends to help. The truth is a lot more complicated.

A deeper understanding of the causes and consequences of long-term unemployment show Obama’s unemployment policies to be harming the people he intends to help. Vilifying people with a different understanding of economics and the unintended consequences of government policies won’t help our country’s economy recover any faster.

Brian Costin is Director of Government Reform at Illinois Policy Institute.