Unemployment fraud in PA

The PA Independent reports that Pennsylvania overpaid $374 million in unemployment compensation in 2009:

In 2009, Pennsylvania paid out more in unemployment benefits than all but two other states and had one of the ten highest unemployment insurance fraud rates in the nation, according to statistics released by the federal Department of Labor this month.


The federal Labor Department classified 61 percent of all fraudulent payments in Pennsylvania during 2009 as being due to "separation issues," when a recipient of unemployment compensation is working and being paid but fails to report their income in order to continue to receive unemployment. Another 30 percent of fraudulent payments were due to inaccurate reporting of income during the year before the individual became unemployed, which establishes the individual's benefit level.

To point out the obvious: Fraud is bad. Though when thinking about preventing fraud, one does have to consider the cost. This passage from Matthew Yglesias is helpful:

It’s obvious to everyone in a private sector context that the costs of fraud-prevention sometimes exceed the costs of fraud. At CAP, for example, there’s no system in place to prevent people from using the office printer for personal activities. Similarly, you can just walz into the copy room and poach some envelops. And, indeed, fraud and abuse of this sort do take place. But while it wouldn’t be beyond the intellectual capacity of CAP’s senior leadership to design a system to prevent this, preventing the fraud and abuse wouldn’t actually be worthwhile. If you try to do 100 projects well and quickly, you might find out that only 90 of them actually get done well. That might be ten instances of waste. But if the alternative is to avoid all the waste but only get 70 projects done at medium speed, that might be worse.

Of course, in this case, the fact that PA does a worse job at this than most other states does suggest that it could do a better job of fraud prevention here without going overboard.

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