Inequality, Unemployment, and Making Things

Thursday, January 2nd, 2014

I’m not an economist, but it’s unfortunate that Rand Ghayad posted a link  on his blog to his policy brief called “A Decomposition of Shifts of the Beveridge Curve.” It’s also unfortunate that the paper might have been read by Kentucky Senator Rand Paul, who wrote an article called “Taxpayers, jobless Hurt by Extended Aid” for the Kentucky website. The reason I say it’s unfortunate that Ghayad posted the link is because it lead to his having to write an article at The Atlantic called “… No Reason to Cut Unemployment Benefits.”

Paul writes:

In fact, it’s worse than that. According to a study by Rand Ghayad and William Dickens for the Federal Reserve Bank of Boston, employers will choose a less-skilled worker who has been unemployed for two months over a worker with more skills who has been unemployed for two years.

So yes, extending unemployment benefits to two years does a disservice to the unemployed. I want to be clear: No one is blaming the worker. Economists are simply looking at the facts that motivate employers.

Ghayad writes:

So why does he want to end unemployment benefits for people who have been out of work for 6 months or longer? Well, Paul cites my work on long-term unemployment as a justification—which surprised me, because it implies the opposite of what he says it does.

Now, we clearly have a long-term unemployment problem. The question is why. Paul says it’s all about incentives. He thinks extending unemployment benefits does a “disservice” to the unemployed by encouraging them to stay unemployed for too long. And as a “big-hearted” member of a party that cares about the jobless, he wants to protect them from making such mistakes—by cutting their benefits, of course.

In my view, cutting benefits when it’s pretty well known that people are getting tired of looking for work that isn’t there should be construed as cold blooded. In Paul’s piece there seems to be a striving imperative of getting the policy right. Maybe that’s true, but just because one policy might be good for people doesn’t mean that we should dash the ones that immediately assist.

Some economics scholars argue that leaner government is better. The austerity story. Others argue we need much much more stimulus to make up for the loss of demand in our current “free market.” Here’s a round-up of some the context of the debate on the issue. If the Obama administration is going to do something, I’ve argued in the past for making and fixing things, like rails, bridges, schools, and crashing the world with new energy sources and solutions. We need to do this Yesterday. If I own a pizza shop and more and more people are unemployed with no income at all, I’m eventually going to have to close up shop. If only 20% of people in the country can afford my product, I’m losing the potential other 80%.

Paul writes:

As a nation, though, there is more to be considered. The biggest consideration should be our $17.3 trillion debt. Should we continue to borrow from China to pay for unemployment benefits? Currently, unemployment benefits are paid for by employer taxes for 26 weeks — anything beyond that is borrowed money.

One reason that the above bugs me is that it implies several good reasons why unemployment benefits should be cut (I can’t actually think of any, though I could fabricate something). One: China; two: the debt; three: the research supports it. Ghayad strips the last one. And I don’t see how the first two are connected to the problem at all.

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