Tag Archives: safety net

04.23.2013 | Entitlements: What is the Right Size for the Safety Net?

At the beginning of The Intouchables, we meet an unemployed French worker awaiting a job interview. Uninterested in being hired, he needs a third signature for his benefits form to prove he is looking. Inexplicably, he gets the job and the result is a great movie.

While The Intouchables is not really about entitlements, it took me to Denmark’s dilemma. Long thought to be the ideal welfare state, Denmark’s entitlements include free college, free health care and universal child-care payments. Private businesses can run public institutions and, unlike the French, fire workers freely (which means they will hire more willingly). Still, some Danes are increasingly concerned that public sector perks are diminishing the work ethic.

As a result, during June 2010, Denmark halved the time that you could receive unemployment benefits from 4 years to 2. Displaying why, the following graph shows that the number of people who get jobs spikes just when fired or 4 years later (or 5 years during the 1990s) when they figure they better take any job because their benefits will soon expire. However, because it is tough to go back to work after 4 years, many do not.

Debating the merits of the welfare state, most researchers look at haves and have-nots inside countries. Instead, in this paper, 3 economists look at the impact of the Scandinavian welfare state on other nations. Fascinatingly, they conclude that the world would be less affluent and less innovative (see below) if we all adopted Denmark’s “cuddly form of capitalism.” As they tell us in their last sentence, “we cannot all be like the Scandinavians, because Scandinavian capitalism depends in part on the knowledge spillovers created by the more cutthroat American capitalism.”

From “Can’t We All Be More Like Scandinavians?”

Sources and Resources: For more from those who totally agree with Denmark’s welfare state, I suggest reading this post from Dean Baker and The Economist’s series of articles on Scandinavia. Tilting toward the other side, are these articles (and my unemployment graph), here and here, from the NY Times. But, if you had to choose just one paper to read, I recommend the introduction and conclusion that frame the AceMoglu, Robinson, Verdier paper, “Can’t We All Be More Like the Scandinavians?”

Posted by: adminEcon
Tags: entitlements, incentives, Nordic Welfare State, safety net, The Intouchables, unemployment benefits
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02.05.2013 | How Has The Safety Net Affected the Unemployment Rate?

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
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05.21.2011 | Trade Deals

What if Mr. Jones, an assembly line worker, lost his job because of low cost imports? And, what if Mrs. Smith, a travel agent, also is unemployed but the reason is online firms like Expedia?

Princeton economist Uwe Reinhardt asks us why Congress is likely to express more concern for Mr. Jones than Mrs. Smith. Instead, he suggests that whether the reason is global or domestic job disruption, perhaps all who gain should compensate those who have lost.

Dr. Reinhardt’s perspective takes us to the current debate in Congress and the size of our safety net. Should a yes vote for free trade agreements with Panama, South Korea, and Colombia include more assistance to people who, as a result, lose their jobs? The NY Times tells us that a group of Democrats say, “Yes” while a group of Republicans say, “No.”

The Economic Lesson

The 4 basic causes of unemployment are 1) structural (technological change), 2) cyclical (recession) 3) seasonal 4) frictional (everyday reasons like quitting and moving).

An Economic Question: If government provides a safety net of retraining and payments to the unemployed, what are the tradeoffs? ( Here and here, you can access facts about government aid to workers who lost jobs because of trade agreements.)

Posted by: adminEcon
Tags: free trade, safety net, unemployment
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10.31.2010 | Silver Job Fairs

It is more likely that a 75 year-old South Korean will be working than a 60 year old Frenchman. According to OECD (Organization of Economic Cooperation and development) statistics cited by Floyd Norris, workers in South Korea and Japan remain in the labor force longer than their French counterparts.

Is this good or bad? It might depend on how you answer the following questions:

1. Is grandpa taking junior’s job?

2. Can government afford to take care of grandpa?

3. Does grandpa like his job?

The Economic Lesson

While France is hit by demonstrations against raising the retirement age to 62, South Korea is scheduling “silver job fairs” to help older workers find jobs. Understanding the different approaches takes us to the political, economic, and social implications of fiscal policy–government spending, taxing, and borrowing.

Posted by: adminEcon
Tags: France, retirement, safety net, South Korea
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05.29.2010 | Economic Freedom

Composed of 179 countries, the Index of Economic Freedom ranks France 64 and the United States 8. At the top of the list, with the more free economies and the lowest numbers, are Hong Kong, Singapore, and Australia while North Korea, Zimbabwe, and Cuba are listed at the other end. On the United States pages, the authors indicate that the index number is destined to increase because of the response to the financial crisis. Citing massive government spending, they say that economic freedom has diminished.

A Washington Post column by Michael Gerson actually started me thinking about government economic intervention. He pointed out that support for health care reform has recently diminished to 14% of the U.S. population expressing ‘”very favorable” views’. Taking us to an historical perspective, he says that the social safety net initially targeted the elderly through Social Security and Medicare, and the poor and disabled with Medicaid and Aid to Families With Dependent Children. Looking at waning enthusiasm for health care reform, he suggests that the U.S. population prefers a safety net reserved for those who need it rather than everyone. He is also saying that U.S. public opinion prefers a lower Index of Economic Freedom number.

The Economic Lesson

To determine the extent of government economic intervention, researchers look at such variables as the ease of starting a business, the degree to which trade is free, and the level of government spending and taxation. The list also includes the amount of corruption that permeates the business world, such labor regulations as how easy it is to dismiss an employee, and the dependability of property rights.

Posted by: adminEcon
Tags: government economic intervention, health care reform, Index of economic Freedom, safety net
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