Should Millionaires Apply for Unemployment?

I recently posed this question to my newsletter readers after seeing Sam’s tweet about it last Friday:

“Almost 3,000 millionaires claimed jobless benefits in 2008 according to the IRS and nobody should complain. They suffered an insured loss.”

Most people have one of two reactions to this kind of news:

  • Good for them!
  • What the heck?

It’s a polarizing topic, just like politics or health care. I think there are two basic principles at work here which people are reacting to. Let’s take a closer look:

Right: “…a just claim or title”

The basis of Sam’s earlier tweet is the belief that everyone who is rightfully entitled to receive unemployment benefits should be able to do so.

Unemployment insurance, at the very core, is an insurance product managed by the state. Companies pay into the fund on your behalf, and in exchange, you get to collect money if you happen to lose your job unexpectedly.

While the fund is sensitive to income for payout amounts (with a maximum cap on benefits), there is no maximum cap on income that I know of. So millionaires can, in theory, claim unemployment just like anyone else.

Their employers, just like millions of other companies, paid into the same fund to insure against the loss of a job. Claiming unemployment is simply cashing in that insurance policy…right?

Need: “…a situation or time of difficulty”

A need analysis would evaluate someone’s measurable need for unemployment compensation, whether that’s based on percentage of income replaced, amount of savings available to cover expenses, amount of required monthly expenses, or some other measure.

Unemployment insurance as it works now doesn’t discriminate based on these factors, but many critics of the system do. They argue that unemployment helps too many people who don’t really need the money, and not enough people who truly do.

A need-based system would evaluate a person’s ability to sustain their families on unemployment income while they search for another job.

Looking at unemployment through the eyes of need paints an entirely different picture–millionaires probably don’t need the help, and even if they did–unemployment only replaces a small fraction of their previous income. What good could it possibly do?

Where Do I Stand?

A lot of people have asked for my opinion on unemployment because so many of my friends have been laid off. (I would not be surprised if the unemployment rate in the architecture industry currently tops 50%.)

When it comes to principles vs. emotion/compassion, I usually tend to side with principles. Some people call it being smug, or even “riding a high horse,” but to me, fairness and equality rule the day every time.

A lot of people criticize the current system for not helping those who really need it. They say that there’s a lot of ongoing fraud and abuse in the system.

I agree. But a need-based system, if that’s even an alternative, would open us up to infinitely more fraud.

On the subject of millionaires, I think they’re within their right to claim because that’s the system they’ve paid into. They’ve done so with the understanding that they would be able to benefit in case of a loss. If we don’t think it’s right, we need to address the system, not crucify the users.

So, what do you think—should millionaires claim unemployment? What is the future of the system and what would be the best/most fair setup?

Photo by ItzaFineDay

23 thoughts on “Should Millionaires Apply for Unemployment?

  1. Unemployment indeed replaces only a small fraction of rich households’ expenses, even if they live a relatively frugal lifestyle. In other words, the maximum weekly unemployment payment already penalizes rich folks on a relative basis anyway. Besides, if they pay into an insurance fund and should not get the benefits because they are wealthy, does that mean we should also cut back on their life insurance benefits if their savings are too high, or on their car insurance benefits if they can pay for damage out of pocket,……?

    On a different note, when you say that “fairness and equality rule the day every time” it sounds like a “fair and equal” statement, but I bet you that the folks who argue against you also claim that the unemployment system is not “fair and equal.” Fairness and equality are very fluid terms that mean different things to different people. And that may be the only fair and equal thing way can say about fairness and equality! 😉

    1. Hahaha Man, I think I got a headache from all that circular logic.

      It really doesn’t make sense when you think about it logically, but people love to throw emotions into the mix when they hear about stuff like this. “Bah! Why are all these rich people getting unemployment when I can’t find a job for a year?” I guarantee at least 3 people I know personally would have this reaction. 🙂

      1. About you not finding a job in a year has nothing to do with millionaires getting unemployment. Just look at this way- when it comes to paying taxes by April 15 most millionaires I know send the farm to the IRS; so why when it’s time to “collect” when you lose your job it’s not ok? (besides, the millionaire’s employer pays FUTA-federal unemployment tax- based on his salary). As most of us may know the rich pays for the lion share of the taxes in this country, yet they are crucified in topics like this.

      2. Good points, Phil. I think wealthy people in general tend to look at their own money situation more in a “business” sense rather than just a personal finance sense, and see unemployment benefits as just another revenue stream that they can capitalize on. Nothing inherently wrong with that in my opinion, because that’s how the system is legally set up.

  2. An insurance system covers everyone and gets support from almost everyone, even if benefits are skewed in favor of the poorest. A welfare system covers only those in the lowest economic strata and is defamed by almost eveyone, including those who benefit from it the most. Making Unemployment Insurance into a welfare (“needs based”) syatem would undermine its political support and marginalize it as a social safety net in America. Means testing for other programs — like Social Security and college grant/loans programs — would have the same effect. I wonder if those who oppose such public programs aren’t really the guiding forces behind means testing “reforms” proposals.

    1. Great point, we’d just turn unemployment into another welfare program.

      Here’s another thought: Could we make unemployment insurance “optional,” so that those who really don’t need it (i.e. “the rich”) don’t have to pay into the system? Would this help or break the system?

      1. Insurance functions by pooling risk, sharing the hazard of loss among as large a body of people as possible. With a policy allowing opting out, the pool is reduced by every person who takes that option. With a reduced pool of people sharing the risk, several things happen:

        1. If those who are at lowest risk are allowed to opt out of the system, they will personally benefit little. My “premium” for Unemployment Insurance on a $100,000 salary will be about $80 for this year. That’s all I would save by opting out and assuming the risk of having no Unemployment Insurance. Surely no millionaire would consider $80 much of a financial burden.

        2. Those left remaining in the pool are those most subject to unemployment risk. In the US that means minorities, those without college educations, the young and the elderly, those with spotty work histories and marginal but chronic health problems, etc. will be disproportionately overrepresented. Yes, that’s starting to look like a “welfare” population, isn’t it? Easy to stigmitize, easy to erode support there.

        3. Since those most at risk would remain, those left in the pool would face having to pay about the same number of unemployment claims even though fewer people would participate in the system. It’s simple math: if you divide essentially the same costs among far fewer people, the cost per person climbs. Since many of those left in the pool would be the lowest paid among us, this “opt out option” is simply a quiet way to pass on higher per capita costs to the lowest paid workers.

        4. As per capita costs to remain covered increase, marginal workers seeking to save a few hundred dollars a year — a lot of money if you’re making close to minimum wage! — may risk opting out themselves, subjecting them to financial devastation when, sooner or later, they face unemployment. Effectively, they were squeezed out of any protection by a safety net.

        Making UI “optional” is just another way to weaken and marginalize it as a social safety net.

      2. I agree that the systems works as-is and with your assertions. However, I have the following observation:

        – Shouldn’t any insurance system be available only to those who WANT to be insured? Otherwise, is it really just “tax” hiding under the name of an “insurance?”

        Since the wealthiest Americans are the least at risk, but continue to pay into the fund, is this just another way of “spreading the wealth around?”

        Tough question–UI is one of those necessary evils. What do you think?

      3. Insurance transfers wealth from all premium-payers to those who make claims. In that sense I suppose you could say it is a form of “spreading the wealth around,” but that phrase is usually used as a politically-tinged perjorative and I don’t think people use it when referring to insurance. More commonly, people refer to insurance as a way to “spread the risk around,” a phrase devoid of political connotation as far as I can tell.

        Your questions presume that the only acceptable forms of insurance are private and individual. There is also “social insurance” of various types. These exist because of situations where most everyone wants to enjoy living in a society where a form of risk protection is available, but where permitting “free riders” would undermine the system’s risk protection for most everyone. My October 6, 2010 at 2:49 PM post here sketched how Unemployment Insurance was one of those situations.

        Moreover, the phrase “spreading the wealth around” usually refers to taking wealth from one to give to another, a zero sum game. When well constructed, both private and social insurance systems serve to enhance total wealth for those in the insured pool by reducing their total costs. Please forgive an extended example:

        Consider a society with no Unemployment Insurance. Since no individual can accurately forecast their personal risk of unemployment, each would need to set aside precautionary savings equal to many months expenses to tide them over between jobs. This would entail saving many thousands of dollars each year and having inadequate risk protection until tens of thousands have been accumulated.

        Now consider the society we live in, the one with Unemployment Insurance as a social insurance for all workers. I pay $80/year in premiums for the immediate risk protection of $450/week if I’m unemployed. No, that’s not enough to pay all my usual bills, only about 40% of them, but that means it reduces by about 40% the amount I need to save. Someone making half of what I make would pay the same premium for the same claim benefit, but see the amount they need to save reduced by roughly 80%.

        This reduction in the cost of having to set aside so much in precautionary savings frees up thousands of dollars for everyone insured, leaving all of us with more to spend, invest or give away. That’s a win-win, not a zero sum “spreading the wealth around.”

        Hard question response: Is UI a “necessary evil”? Evil? What an odd and revealing choice of a word. Our experiences of evil in the world must be so dramatically different that I am totally puzzled.

      4. Great points, Jane. Forgive my choice of expression, but it has nothing to do with “evil” for me.

        “anything which, despite being considered to have undesirable qualities, is preferable to its absence.” (Wikipedia)

        Unemployment certainly has it drawbacks in my mind, but I feel it’s a necessary part of the American system. You make a strong case for it in your comment.

  3. Great debate! Here’ something to think about:

    If you are a millionaire, and have house insurance, should you not be able to collect if a fire burns down your house b/c you are rich? No, you collect b/c you paid for it.

    Sorry to burst the debate, and make it a non-debate now, but people know I’m right! 🙂

    Treat the “rich” EQUALLY and stop the persecution!


    1. LOL Yes, we bow to your greatness, master. 😉

      I agree with your example. If the system is wrong, we need to change the system, not the break promises we agreed to keep (i.e. payout).

    2. You’re 100% correct, and you have officially ended the debate! People are treating the “rich” like villains, and this is causing people to be irrational. Like Wojo said, if you don’t like the system, change it. But don’t violate it!

  4. In Arizona, even if you are NOT earning a million, unemployment only replaces a very small portion of your income. Folks get 4% of the wages paid during the quarter with their highest earnings, and it’s capped at $240 per week last I looked. So while a little bit isn’t much help regardless if your income, it’s better than nothing.

    I do think everyone eligible should be able to apply. Whether or not they DO apply is often a different matter.

    1. I often wonder how anyone with a family can support them on $300 a week (our state cap). That would barely pay my rent and food. With unemployment so prevalent now, there’s a good chance both parents may not be working! It’s tough out there. 😦

  5. On the same topic, government aid, are you wrong for claiming other benefits such as welfare if you are on a run of bad luck and end up in a situation where you need federal help?

    You pay into the system, just like unemployment insurance, so isn’t that money due to you when you quality to get it? I’m with you Wojo on the principle of the matter.

    1. True! I think as long as I believed that it was temporary and I needed the help to GET OUT of the situation, I think I would consider welfare or other forms of assistance.

      I know unemployment helped us tremendously when my wife lost her job last year, and she used it for its intended purpose–to look for work!

      Unfortunately, it’s those bad apples that make the programs look ineffective.

  6. I disagree with most of the comments here. I think millionaires have a moral obligation not to file for unemployment if they don’t have the need to.
    The system is really stretched thin as it is, we don’t need more people than absolutely necessary taking money out.
    They have a right, sure, but extraordinary times call for extraordinary measures.

  7. Peter, I totally agree with your comment! My wife and I just had this conversation today. Like many others, she lost her job a few months ago. I was an active duty soldiers up until my retirement date 1 March 2011. However, through God’s grace and mercy I was hired by a defense contractor making three times my military salary. So, we agreed that she will not apply for UI because we do not need it. Her friends keep telling her she should apply because it is her money. Even though she is eligible, we believe the intent behind UI was to help bridge the financial gap until they can get back on their feet.

  8. Just because someone has assets worth over a million dollars does not mean that they have a ton of cash lying around. Often the wealth is tied up in stuff like realestate, yachts, etc. that are not exactly liquid assets especially when the economy is in the tank and nobody is buying. If they lose their job and can no longer make their payments they are just as broke as everyone else.

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