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
What happens when a philosopher who believes in less government gets benefits from government?
Here is the story:
In a building that Love Story author Erich Segal owned, Harvard professor Robert Nozick (1938-2002), a libertarian philosopher, was a tenant. After paying annual rent hikes, Nozick discovered that his apartment was rent controlled and the increases were illegal. Segal, however, refused to give him a refund saying, “You’ve abdicated the right to complain.” The reason was Novick’s book, Anarchy State and Utopia, in which he explained why society had no right to “commandeer” the fruits of an individual’s talent and hard work through redistribution.
Like taxes, rent control is redistribution. Rather than moving money from the rich to the poor, rent control redistributes income from landlords to tenants through government mandated lower rent.
This story ends in court where Nozick got a favorable decision and his money.
For us, though, the story is never ending. Dr. Novick’s ideas on distributive justice take us to how we view our tax system. Is the “just” society built on a foundation of individual talent with minimal redistribution or community sharing?
For a fascinating discussion of distributive justice from the divergent views of John Rawls (redistribution can be okay) and Robert Novick (not okay), I highly recommend this Econtalk podcast and transcript. More on rent control is here and from Novick, his single page “Tale of a Slave,” here.
I live in a town where I have to pay for garbage pick-up and recycling or I can dispose of it myself. The fire department is voluntary. Because there is no local high school, the town pays other school districts to educate our teenagers. In our town, government provides less and our property taxes are relatively low.
Harvard professor N. Gregory Mankiw might use my town as an example of competition among governments. People who want a local high school would not choose to live here. Using the same reasoning, Massachusetts might attract people who want universal health care while New Hampshire is for those who do not.
Dr. Mankiw said that municipal differences can elevate the quality of government because they lead to competition. Concerned that its households and businesses are leaving, then a town, a city or a state will improve its services or lower its taxes.
By contrast, those of us who believe government is responsible for more services and a more equal society have to reject municipal competition. In order to give more to everyone, governments have to redistribute income. Then though, as Dr. Mankiw explains, When you… “take from Peter to pay Paul, Peter may well decide to leave.” How to prevent Peter’s departure? Make everyone more equal everywhere.
Do I want a national government that gives me what my town does not provide? The next U.S. presidential election will probably let me express my opinion.
To read more about the free and fair visions of government, you might enjoy this column by H. Gregory Mankiw. For each side, “free” is defended in this econlife post while the opposite position is in this obituary for Harvard economist John Kenneth Galbraith. Also, you might want to see what Mitt Romney and President Obama have said about the debate.