Does unemployment insurance keep people from working?

One of the best ways to find work is to work part-time in the hopes of it turning into full-time employment. Another strategy is to try to work for yourself as a freelancer, consultant or entrepreneur. But either of these have one giant downside — if you collect unemployment insurance and you earn more than a certain amount a week from work, you’ll jeopardize your unemployment earnings.

Here’s how it works in NY, where I live (it varies state by state, but most states have a similar system):

If you work less than four days in a week and earn $405 or less, you may receive partial benefits. Each day or part of a day of work will result in your weekly benefit rate being reduced by one-quarter. For example, if your weekly benefit rate is $100 and you work three days and earn less than $405, you could potentially receive $25 in benefits. If you work two days, you could potentially receive $50 in benefits. If you work one day, you could potentially receive $75 in benefits.

As I talk to people, I’ve noticed a pattern. Though almost no one could support themselves on the paltry sum they receive from unemployment insurance, many folks (especially at the lower end of the income spectrum) use unemployment benefits as a cushion that supplement with some other income until they find a full-time job. But in order to preserve their unemployment benefits, they look for off-the-books work.  Sometimes they do consulting or freelance work, again only if they can find clients willing to pay them on the sly. By doing this, they might be taking steps towards finding full-time work. But they are probably living in fear of being discovered (and facing severe penalties, including jail time in some states). {Read the rest at Yahoo!}

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