University of Chicago economist Casey Mulligan believes that the US unemployment rate has remained high because of many separate public policy changes. Big and small, each one influenced workers, businesses and consumers by creating new incentives.
For workers, Dr, Mulligan described a bigger safety net:
- People could collect unemployment insurance (UI) for 99 weeks instead of 26.
- Food stamp programs became more inclusive with less stringent qualifications.
- The food stamp benefit grew by 40% in 2 separate stages.
- A $25 “bonus” was added to the usual unemployment benefit.
- The duration of work history was decreased as a qualification for UI.
- Mortgage help increased for longer unemployment.
- The unemployed could receive 65% of their health insurance expense.
He also explained why, for businesses, the incentive to fire workers increased:
- Concerned employers knew that fired workers would get relatively high benefits.
- Obamacare taxes and tax hikes are making employees more expensive.
- It became increasingly attractive to replace workers with less expensive capital.
- Employees had to be fired (rather than quitting) to qualify for unemployment benefits.
In addition, certain consumers had less to spend.
- Increased taxation involves taking more money from one group than it gives to the other group.
As a result, several million lower income workers had more when unemployed than with a job while the majority had the equivalent of 85% to 90% of their previous income. Yes, of course, depending on the individual, the new incentives have a varied impact. Still though, Dr. Mulligan asks all of us first to recognize that our lawmakers have implemented changes that he believes have increased the unemployment rate substantially.
Then we have to decide whether we support the tradeoff: More support for the unemployed or more efficiencies that lead to fewer unemployed?
7.9% during January, the civilian unemployment rate touched 10% during October, 2009.
Sources and Resources: An hour long, every minute of the econtalk podcast in which Casey Mulligan described his research and new book to Russ Roberts was captivating. It perfectly conveyed the tradeoff that we all need to know, whatever our preferences. Then, for recession data, here is the BLS website.
Posted by: adminEcon
Tags: Affordable Care Act, capital, Casey Mulligan, Econtalk, food stamps, incentives, Obamacare, productivity, recession, redistribution, Russ Roberts, safety net, St. Louis Fed, UI, unemployment insurance, unemployment rate, University of Chicago
I just discovered a surprising statistic.
In the euro zone, judged by hours per week, the Germans are not nearly the hardest workers. Instead Greece, with an average of 42.1 hours is close to the top of the list. By contrast, for 2011, the average German devotes 35.5 hours to a job and the Netherlands, with the lowest time, is 30.5.
The reasons that Greeks work long hours relate to where and who. More Greeks are in agriculture where longer hours prevail. Also, in Greece, people tend to work full time or not at all while in Germany there are more part-time opportunities. Finally, more women work in euro zone countries and women tend to work less.
This takes us to a predictable conclusion. Although Germans work less, they are much more productive. A Greek worker generates €20.3 per hour while Germans produce more than double at €42.3. In 2011, at €51.8 an hour, the Irish topped the productivity list and their low corporate tax seemed to be the reason. Attracting multinational firms, they became a magnet for the world’s best technology, technology that boosted Irish productivity to relatively stratospheric levels.
A definition: When we look at productivity, we are comparing factor inputs-land, labor and capital– to the value of the goods and services they create. More output from less input means a more productive economy. It also means resources are then freed to do other work and produce still more.
Sources and Resources: Many thanks to the Brussels WSJ blog where I first saw the Greek German worker hours/productivity comparison. For up-to-date information and analysis on worker hours and productivity, Eurostats has easily accessible data.
Euro Zone Labor Productivity Per Hour Worked
Legend (euro per hour worked):
- Lighter yellow: 4.8-10.8
- Darker yellow: 10.8-20.2
- Lighter green: 20.2-39.2
- Dark green: 39.2-46.2
- Darkest green: 46.2-68.7
- Gray: No data
Posted by: adminEcon
Tags: capital, employment, factor, Germany, Greece, Ireland, jobs, labor, land, multinationals, productivity, technology, working hours
Sometimes new technology increases productivity.
“Sushi making robots” at Kura, a restaurant chain in Japan, have replaced chefs while conveyer belts take the food to diners. By using less labor and more capital, in a tough economy, the firm is profitable.
In 1913, Henry Ford decided to “take ‘the work to the man’ instead of ‘the man to the work’” with a moving assembly line. Implemented during October, by December, average Model T labor time for assembling the chassis decreased from 12 hours 28 minutes to 2 hours and 38 minutes (Chandler, p. 26).
Sometimes, though, attempts to be more efficient just do not work out.
Hoping to save $3 million annually, Toledo, Ohio tried to implement a high-tech garbage system. Automating the pick-up with pincer equipped trucks, the new system, as described by one resident, doesn’t “…take all the garbage, they drop it everywhere, and you have to clean it up…”
The Economic Lesson
Defined as more output per labor hour, productivity results from more inputs (land, labor and/or capital), better inputs, and/or a more effective combination of inputs.
You can see why productivity matters. As described in a Teaching Company Lecture by Dr. Robert Whapples (#4), greater productivity fuels economic growth. After recessions, typically, productivity increases because output is not entirely offset by lay-offs. Recent U.S. productivity, at an average annual rate of 6.2%, surged during 2009. During 2010, though, it slowed and even contracted for one quarter.
Reading about India’s inadequate railway system, I thought about the Erie Canal. Currently, massive freight containers that took four or five days to travel from Singapore to Mumbai will then take 28 days to reach New Delhi because trains and tracks are too congested. To continue growing, India will need a better transportation network.
By contrast, during the nineteenth century, a transportation system of roads, canals, and railroads increasingly crisscrossed the United States. Dug between 1817 and 1825 from Albany to Buffalo, N.Y., the Erie Canal was the last link of an all-water route between the port of New York and the Great Lakes. Because of the Erie Canal, eastern manufacturers could easily trade with western suppliers of raw materials. Instead of traveling via slow and expensive overland routes, goods could move across the Erie Canal more cheaply and quickly.
Specifically, to ship freight 100 miles by land during the early 1820s would have cost $32 a ton. By canal, the expense dropped to $1 per ton. Several decades later, in 1852, moving over rivers and canals between Cincinnati and New York City, freight arrived in 18 days. By rail, it took 6 to 8 days.
The Economic Lesson
Canals and railroads could also be called capital. Defined as tools, buildings, and inventory, capital is crucial for economic development because it saves time and increases knowledge. Because capital investment involves postponing current consumption, India has politically difficult choices.
This story is about a canal and a plastic milk crate. It takes place on a mango farm in Haiti. The farmer has 2 mango trees. The trees produce her entire crop and her income of approximately $2 a day. As described by NPR’s This American Life, to double production, this farmer just needs water from a nearby river that a short canal would deliver. For Americans to buy more of her crop, she just needs a crate to minimize bruising. To get the crate, she needs aid from an NGO. For the NGO to provide the crate, she has to participate in a farmers’ cooperative. For the cooperative to get the crate, they need property on which to store crates. To get the property, the farmers have to be willing to give it to the coop.
I think you see where this is going. It is complicated. And, to make matters worse, Haiti is listed by the World Bank as one of the toughest places in Latin America to do business. Ranking close to last (#32) in such categories as “ease of starting a business” and “construction permits,” Haiti’s bureaucracy presents formidable business obstacles.
The Economic Lesson
Countless economic issues relate to Haiti’s canal and crates story. Technology (a canal), tools (crates), and transport (roads) are only several challenges facing a mango farmer who wants to double her production. Add huge transaction costs (“red tape”) to the tale and you wind up, so far, with a sad ending. You also have a production possibilities curve that will not increase.
To hear a surprising solution, you might want to listen to the econtalk podcast on charter cities from Stanford’s Paul Romer.