12/03/2012 04:09 pm ET Updated Dec 04, 2012

Unemployed Americans Not Collecting Benefits Save Taxpayers Billions

WASHINGTON -- Though some politicians complain about unemployed people improperly collecting benefits, Americans laid off through no fault of their own actually save the United States government a lot of money when they don't collect benefits for which they are eligible.

In an eye-popping study for the Federal Reserve Bank of St. Louis, economists found that the amount of unclaimed benefits dwarfs improper payments. In 2009, the government overpaid unemployment claims by $11 billion. But if everyone eligible for benefits had collected that year, the cost to states would have been much higher.

"The additional expenditures in 2009, toward the end of the recent recession, would have been a whopping $108 billion," wrote economists David L. Fuller, B. Ravikumar and Yuzhe Zhang in their recent paper. "On average, the unclaimed benefits are much larger than the more frequently discussed overpayments."

Improper payments grab national headlines, and Congress has held hearings on the issue.

"At a time when millions of Americans are out of work, it's outrageous to lose $17 billion worth of Unemployment Insurance dollars to overpayment and fraud," Senate Finance Committee Chairman Sen. Max Baucus (D-Mont.) said in a statement this summer, citing an overpayment figure for 2010.

Congress is debating whether to reauthorize federal unemployment insurance programs, which currently provide up to 43 weeks of additional benefits for workers who use up their 26 weeks of state benefits. Democrats want to include the extended benefits as part of a deal to avoid the "fiscal cliff," the moment at the end of the year when big spending cuts and tax hikes are scheduled to take effect, potentially tipping the economy into a recession.

But keeping the benefits would cost $30 billion, and some Republicans suspect extended unemployment insurance has made life too easy for the jobless, some of whom might be fraudsters.

"It's easier for them to stay on unemployment than it is to work," Sen. Orrin Hatch (R-Utah) said last week. "I'm concerned about the high percentage of people who don’t even look for a job anymore. It's pretty amazing to me."

Asked by HuffPost if people game the system by collecting unemployment and other benefits for which they are not eligible, Hatch said they did. "There is some real gaming going on," he said, not citing evidence.

According to the National Employment Law Project, overpayments have accounted for 10.4 percent of all unemployment payments during the three-year period ending June 2011. Fraud represents less than 30 percent of overpayments, mostly occurring when claimants illegally keep their benefits after returning to work. Much of the rest of overpayments happen when employers fail to provide timely information about a worker's separation or when claimants fail to fulfill work-search requirements, according to NELP's analysis of Labor Department data.

Fuller, Ravikumar, and Zhang wrote that, on average, just 35 percent of the jobless have collected benefits over the past 22 years.

In some places, applying for benefits presents too much of a challenge. In Florida, for instance, tough new rules may discourage people from applying. The recipiency rate there has declined markedly since those new rules took effect last year.

In other cases, people without jobs are ineligible for benefits because they are new to the labor force or didn't work enough hours to qualify; some just don't apply. From 2007 through 2009, roughly 50 percent of people eligible for benefits successfully filed claims, a fraction Fuller and his co-authors say increased to a surprising 95 percent in 2011.

In the past year, as the government has trimmed benefits, the share of the unemployed population receiving compensation has fallen faster than the overall population of people without jobs. Of 12.3 million jobless, just 5 million received state or federal benefits in the week ending Nov. 24, according to the Labor Department. At the same time last year, more than 7 million of 13.6 million jobless received benefits. If Congress drops federal compensation, fewer than 1 in 3 unemployed Americans will be on the rolls at the start of next year.

HuffPost readers: Unemployed and not receiving benefits? Tell us about it -- email arthur@huffingtonpost.com. Please include your phone number if you're willing to be interviewed.

Additional reporting by Ryan Grim.


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