Cons of Collecting Unemployment

When you lose your job, unemployment insurance can help you continue to pay bills and buy the basic necessities while seeking a new job. Each state administers its own unemployment insurance program, but the basic goal is always to prevent a bad situation from growing worse, as bills pile up and loan obligations go unpaid until you can recover your source of income.

Function

• State unemployment insurance programs require newly unemployed workers to apply before receiving benefits. Benefits are not automatically given, not even for state or local government employees. Once you start receiving unemployment payments, you must remain in contact with the state to note that you are still unemployed and still actively seeking employment. If an employer offers you a position, you must take it, regardless of whether or not you like the job. Unemployment benefits come in the form of a check, which you can cash and spend as you see fit.

Drawbacks

• Unemployment benefits don't kick in immediately after you lose your job. This means that, unless you have some personal savings, you're still likely to experience financial hardship before you receive your first unemployment check in the mail. States also cap unemployment benefits, both in terms of how much you can receive each week and how many weeks you can continue to receive benefits. Weekly rates may be far below your previous weekly earnings, and $15 weekly dependent credits, such as the credit offered to unemployed people in Connecticut, only pay for a fraction of a child's needs.

Time Frame

• Most states require you to contact the department of labor once a week with an update on your job search. Failure to do so will end your unemployment benefits. States also enforce unemployment benefit limits. For example, in Connecticut, you can draw unemployment for only 26 weeks per calendar year, regardless of how long you remain unemployed. This means that unemployment benefits can serve as only a temporary, partial solution.

Warning

• According to the IRS, unemployment benefits qualify as taxable income when it comes time to do your taxes the year after receiving benefits. If you didn't sign up to have the state withhold money from each check, you may be liable for taxes to both the federal and state governments. If you fail to report unemployment income on a tax return you risk fines and possible criminal charges.

Effects

• Collecting unemployment can have financial and social drawbacks for you as an individual, but it also affects the broader economy. Unemployment, as measured by the number of people who collect unemployment benefits, raises questions about consumers' long-term ability to spend money. It also places a financial burden on the state, which must pay those benefits. Governments must balance these consequences against the taxes they collect on unemployment benefits and the social value of providing unemployed citizens with the means to pay for basic necessities.