By Dave Anderson:
Dave Schuler at the Glittering Eye asks a good question about the work disincentive impacts of extended unemployment insurance:
Similarly, I�d like to see the real evidence that extending
unemployment benefits does �tangible harm�. I�ve questioned the
practice myself and I�d genuinely like to know what the facts are.Are people going on the dole because it�s easier than working? Or
are there just no jobs available? Should we be encouraging economic
migration to find employment? Or will that only transfer mass
unemployment from one geographic region to another?
I think this question has to be broken down into a cyclical or structral recession dichtomy. This is important because it tells us where the future jobs will come from. If the unemployment cycle is mainly due to cyclical fluctuations most workers will be rehired to do the same thing that they were doing when they were laid off. In a structural change people will be losing significant human capital as they transfer into significantly different jobs.
The point of UI benefits is to provide a cushion for workers and their families when a job is lost due to forces beyond a workers' control. This backs out to a larger policy objective of providing counter-cyclical policy support by putting money into the hands of individuals with high propensity to consume their last dollar brought into the family budget. Another reason for UI is to limit the high social costs of foreclosures and other externalities that are generated when people hit a short term hard time.
If the recession is basically a cyclical recession where the Fed raised rates to kill inflation, then extending UI benefits is not a bad policy as it cheaply avoids unnecessary pain. The jobs that the unemployed will fill will get there when the Fed decides it wants to see them, and not a minute sooner or later. Let me take a Pittsburgh example, during the recessions in the 50s and 60s, the steel mills would often reduce their shifts and workforces by lay-offs. Workers could count on being rehired in a reasonable time frame because they knew that once general demand picked-up, there would be demand for more steel again.
If the recession and the job losses are structural, there is a different policy prescription. When US Steel, J&L and other major integrated steel makers decided to shut down the Mon Valley heavy industrial cluster in the early 80s and shift to either mini-mills, non-union integrated mills, or overseas production, those mill jobs were effectively destroyed (as well as the spin-off multiplier effect jobs). Pittsburgh and the region rebuilt its economy by going EDS and MEDS where the "stereotypical' worker was now a 30 something with a BS or MS degree or better instead of a 40 something high school educated man working the ladle.
In this situation, the policy goal should be to minimize the short term pain of the lay-off and help the individuals who are impacted either retrain for a new field, or relocate to an area that still has significant demand for their current skill set. Either option has high personal economic costs. Extending UI in a period of pronounced structural unemployment is probably counterproductive over the long run because it encourages people to stay in place and hope that the mills will come back.
Empirically, the US has a very mobile labor market. I recently read of a study that argued that a state which experienced an employment shock such as the shut-down of the Mon Valley steel works in the mid-80s, would see its unemployment rate return to national trend with six years due to out-migration. I just can not remember where I saw this study (help would be appreciated). Those conclusions were made during a time when far fewer people were under water and bankruptcy laws made it easier to write off crap luck, so structural re-adjustment through out-migration may be slower this time around than in the past.
Brad Delong passes along a useful rule of thumb for the marginal impact of unemployment insurance on lengths of unemployment:
The rule of thumb, IIRC, is that the average duration of an
unemployment spell increases by 1/4 of the increase in the duration of
unemployment benefits. Thus a 13-week increase in unemployment
insurance duration should increase the average unemployment spell by 3
weeks.
That assumes that there are jobs available (at any wage level) for people to turn down in order to stay on UI benefits. Given current average duration of unemployment is above six months (for those covered by UI), there are not too many jobs available at any wage level. Any incentive effect of encouraging people to take crap-pay jobs or less preferable jobs than collecting continuing benefits would be swamped by a new rash of foreclosures and general wage level declines.
I think the long run fear of creating a permanent labor market rigidity by increasing UI availability and thus UI taxes is a valid fear in a normal recessionary environment. However we are not in a normal recessionary environment. We are in the worst employment environment since WWII. I think that the current US policy of providing a decent baseline UI system (26 weeks @ ~50% to 60% employment wages) to cover both frictional unemployment and short-term cyclical unemployment with a decent probability of significant extension of benefits during labor market shocks is a good pragmatic balancing act of encouraging labor market flexibility though out-migration from depressed areas (please note the opening dates of all out of area Steelers bars) and sector shifting while avoiding needless pain when there are just no jobs out there.
The bigger problem is that well-paying jobs for people of average intelligence and without family connection aren't coming back. Extending UI will help with the short term problem, but a long term solution is essential to stave off economic collapse.
ReplyDeleteNot everyone has the smarts or the connections to get a degree, much less an advanced degree. Not everyone is young enough or skilled enough to make it in a trade not threatened by outsourcing or imports.
Something needs to be done to put the 40 year old HS grads back to work at a wage level comparable to what they used to earn. Writing these people off to minimum wage mcJobs sounds attractive to Banana Republicans but is neither humane nor a viable option to sustain a consumer economy.
I agree that the current approach is, in your words, a good pragmatic balancing act. But over the last several months I have had two thoughts that lean toward keeping benefits lean.
ReplyDeleteTwo or three months ago I watched one of those news blurbs with a reporter in the field interviewing job candidates inside some downtown "jobs fair" where prospective employers were taking applications and stand-up encounters with prospective applicants. A line of waiting applicants on the sidewalk stretched over half a block. I noticed nearly all the applicants were well-dressed, many with cell phones and some with laptops. Not quite the "working poor."
The reporter asked one applicant how long he or she had been unemployed and what would happen when UI ran out. The answer was along the lines of "I guess I'll have to get a job waiting tables or something in retail." My visceral reaction was So what's stopping you already? I worked my whole life among people who rarely (if ever) received unemployment compensation. When they lost their job they had to quickly get busy and find another one.
Second, I have watched for decades people migrating to jobs from places where there were none. Your reference to "out-migration from depressed areas" is a valid point to be kept top-of-mind. Retail and food service are good places to monitor the pulse of unemployment. When times were good I hired people from all over the world (including Louisiana, Michigan and New Jersey) as people flocked to an urban area looking for any kind of job. And when times were tough I have hired unemployed professionals retraining as technicians or going back to school to learn more marketable skills.
Future jobs may not be in either the fields or geographic locations that unemployed people expect. The economy will eventually produce a demand for more workers, but flexibility and mobility will be important components of the solution.
I am fascinated that so many people still believe that other find receiving unemployment benefits prefereable to working.
ReplyDeleteHint: Unemployment runs out.
Hint #2: It's a lot less than your former paycheck--your expenses were based on your paycheck, not your comp check.
This is just a variation of the "welfare queen" argument.
And the whole notion of migrating to find a job assumes one has enough case to actually migrate--and that there's a resonable enough expectation of work to make doing so worth the considerable risk. Sell your home and move, what great advice.
The kind of thinking that says unemployment insurance is a disincentive to work is exactly the kind of thinking produced by people who can't distinguish an interesting artifact from a relevant truth.
ReplyDeleteYou can make a number mean anything, as long as you remain within the confines of the spreadsheet and ignore other facts.
There is nothing comfortable about losing your professional place and your work community. There is nothing desirable about suddenly getting by on 17% or less of your original purchasing power. There is nothing guaranteed in an economy that treats people like objects and optimizes profit at the expense of lives, communities, and meaning.
People were dying of starvation in the 1940s, sitting on roads, committing petty crime, for food and shelter, and STILL there are some people who think that's preferable to unemployment insurance extensions for people who have, did, and still, play by the rules. The rules for people who are not financiers, that is. The rules for people who make things.
This problem isn't limited to those of "average intelligence." There are a lot of people who are very bright and well-educated who can't find jobs, either.
Retrain for a new field? Sure. Guarantee that the job will be there at the end, and that the training won't mean a lengthy stay in grad school for work that the student isn't a good fit for, or they would have chosen it already. What company would even hire a well-educated person recently graduated from a 2-yr college program? People do not hire people who look like they "won't stay" or "don't fit" a profile. "Overqualified" is a lifetime assessment, not just an immediate skills issue.
People especially do not like seeing someone reduced that low. It suggests uncomfortable things about security in general: "Could what happened to you happen to me?"
The question is so upsetting that the hiring person will shift the blame from the system to the person, just to reassure themselves that it can't happen to them.
If policy is built around the expectation that people are cheats, liars, and utterly dishonorable, that people don't need dignity, pride, and place, then policy makers are likely to create the conditions that will breed exactly those behaviors.
Teacher expectations affect student performance. Policy expectations affect population performance.
These two comments seem to be aimed at the one I left. To repeat a couple of points that apparently were missed, when I say "keeping benefits lean" I am not arguing against having them.
ReplyDeleteUnemployment benefits are totally essential because we live in an economic system which mandates some level of unemployment. Otherwise, the only way for new enterprises to form is to kidnap employees working elsewhere. Some level of available (unemployed) workers is essential to the formation of new businesses.
It should be noted, however, that vast numbers of hard-working, honorable people live hand to mouth, paycheck to paycheck, and never see an unemployment check between jobs because they are so far under that radar. They live in a world of root-hog-or-die. And when well-dressed, educated, articulate beneficiaries of unemployment compensation checks stay afloat for months -- in some cases over a year -- without working at all, it grates on my sense of fairness.
I was living in central Florida in 1971 and saw well-paying jobs evaporate thanks to a cutback in the NASA budget. There were boarded up schools and businesses for a year or two until the private sector eventually filled in the blanks. But yes, out-migration was the only alternative for those families. The same hard scenario is played out every time a large business closes its doors or moves to another state. I'm sorry, but "sell your house and move" is sometimes the best advice.
I didn't build this car but after several decades I sure learned how to drive it. Now in retirement I am a non-medical caregiver. I'm working for $8.00 an hour in a profession not covered by the federal wage and hour laws but I feel blessed to be able to work. And when I see able-bodied people not working, even those receiving unemployment compensation, I wonder why.
Keeping benefits lean isn't any better than eliminating them. In today's environment short term unemployment is the exception rather than the rule. For the majority of jobs that still exist in this country that pay a living wage retraining for a job in a new field often means taking years, not months.
ReplyDeleteAlso, no one has mentioned the inherent conflict in our societal values and the ideal that the business world holds for their employees. We value family but people are told to leave to find work even if that work won't pay enough or give enough time off to return to see the family being left behind. The great American dream of owning a home is pushed so very hard, yet somehow it is forgotten how much more difficult that makes it to get by if a job is lost and how it serves to limit mobility if the real estate market isn't doing well, which it won't be in a situation with high local/regional unemployment. So what are the real values we hold, or at least want to hold? Those that are most convenient for employers and those that reflect only economic values or a balance between those and what makes a human life worth living? Do you work to live or live to work? Should everyone be in effect forced to do the latter?