President Obama has presided over a terrible job market.
Unemployment today is more than two percentage points higher than the White House would have claimed if it had been the so-called stimulus has been passed.
What’s even more disturbing is that the employment-to-population ratio appears to have declined permanentlywhich is bad news for economic performance since our time Production is a function of the amount of capital and labor is used productively.
So what is the Obama administration’s response? Well, they want to continue to subsidize people for not working.
I’m not kidding. Here’s part of what happened reported by Huffington Mail.
On Friday, the Obama administration strongly supported extending long-term unemployment insurance beyond its current expiration date. “We have always done this when unemployment is so high, and it would make no sense not to do it now, when we are still facing the brunt of the worst economic downturn since the Great Recession.” [Obama economic adviser Gene] – Sperling said. “This is a huge turnaround for the economy, reducing poverty and helping workers who have lost their jobs through no fault of their own get back on their feet.”
But is it true that providing larger unemployment benefits is an approach that “helps workers”? In his academic writings, among others: something both Paul Krugman and Larry Summers pointed out that by subsidizing unemployment you will escalate unemployment.
And research according to Professor Casey Mulligan also discovered a very clear connectionbetween government benefits and unemployment. If you’re still not convinced, here’s the answer some more empirical evidence showing that by subsidizing recreation, you escalate unemployment.
And now we have even more evidence that there is no point in making leisure more attractive than work. Four economists conducted up-to-date empirical research to look at the impact of unemployment benefits on economic outcomes in the labor market. First, they clarify theoretical doubts.
Unemployment in the U.S. rose dramatically during the Great Recession… The policy response was an unprecedented extension of unemployment benefits, extending the benefit period from the usual 26 weeks to up to 99 weeks. …The effectiveness of this policy response was questioned by, among others, Barro (2010) and Mulligan (2012). Because the extension of unemployment benefits constitutes a hidden tax on labor in the market, it subsidizes unemployment and discourages the supply of labor. …Everything else equal, extending unemployment benefits puts upward pressure on the equilibrium wage. This reduces the profits that employers make from filled jobs, leading to a decline in the number of up-to-date jobs. A lower number of job vacancies means a lower rate of workers finding a job, which leads to an escalate in unemployment.
They then present their findings, including the remarkable result that most of the low employment rates in recent years are the result of extended unemployment benefits.
Our empirical strategy exploits policy discontinuities across national borders to determine the impact of unemployment insurance policies on unemployment. …We explicitly control for the effects of other state-level policy changes (that may be correlated with unemployment benefit extensions) to ensure that our estimates isolate the effects of unemployment benefit extensions. …We find that unemployment increases dramatically in border counties belonging to states that have extended unemployment benefits compared to counties just across the state line. The quantitative size of this effect is so vast that our estimates suggest that benefit expansions could quantitatively explain much of the post-Great Recession unemployment dynamics.
Some Keynesians argue that unemployment benefits are nevertheless good for the economy because of their effect on aggregate demand. But even if you believe Keynesian theorythe authors state that unemployment benefits are not helpful because they compensate for lost income resulting from fewer jobs.
…the escalate in unemployment due to the expansion of benefits is similar in magnitude to the decline in employment. Thus, the overall impact on spending is ambiguous because extending benefits increases spending by the unemployed but also reduces spending because fewer people are employed.
So what’s the final conclusion? In tiny, we need tough love. Unemployment benefits should be narrow so that companies have more incentive to create jobs and the unemployed have more incentive to get off the couch and find a job.
I raised this issue during television interviewsbut I suspect many people will this Michael Ramirez cartoon more persuasive and persuasive. Anyway, it’s more fun.
And we certainly can’t miss it this wonderful parody of the Wizard of Ides. It doesn’t focus on unemployment benefits, but it presents the great issue of labor supply incentives in a very entertaining way.
But let’s end on a stern note. Comparison of data from the United States and Europeit also shows that government policy has a vast impact on the labor market. And if you prefer anecdotes, take a look this story from Michigan AND this example from Ohio.
PS At least the President is consistent. He’s pushing too different policy which would escalate unemployment.
