Tag Archives: unemployment benefits

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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11.11.2012 | Fiscal Cliff Notes

There might be 2 ways to look at the fiscal cliff.

Specifically, we can focus on tax increases and spending cuts:

Tax Increases

Bush era tax cuts: expire
2010-2011 2% payroll tax cut: expire
Affordable Care Act taxes: kick in

Spending Cuts

Emergency unemployment benefits: expire
Budget sequester (cuts) from Super Committee failure: kick in
Previously legislated budget cuts: kick in
Defense cuts from Iran/Afghanistan reductions: kick in
Medicare payment rates for physicians: reduced

More broadly, we can take a step backward and look at the bigger problems that really have to be solved:

63% of the 2011 federal budget was on “autopilot.” Debating cuts, the Congress only looked at 37% of spending.
1 of 4 budget dollars is spent on healthcare. Looking back 50 years ago, less than 10% of all spending was healthcare, and looking forward, we are heading toward 33%.
Slicing federal employees and agencies would save money but not nearly enough. Even if we fired the entire federal payroll, the deficit would dip by less than one third.
Defense spending is massive. We spent 1 out of every 5 dollars on defense in 2011.
We now borrow close to 36 cents for every dollar we spend. And yet still, the more affluent are paying a larger proportion in taxes and the middle of the middle class (as expressed in the video) is paying a lower proportion.

Where does this leave us? Defined as taxing, spending and borrowing, US fiscal policy is the real fiscal cliff.

Sources and Resources: The specifics of the fiscal cliff are from a past econlife post while the summary of the big issues is from the David Wessel/WSJ video that follows. For even more detail, this Tax Foundation description of the fiscal cliff is good.

Posted by: adminEcon
Tags: Affordable Care Act, Bush tax cuts, defense, economic growth, federal spending, fiscal cliff, health care, recession, unemployment benefits
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07.11.2012 | What is the Fiscal Cliff?

The fiscal cliff is composed of 8 tax and spending events. Permitting all to occur might be the equivalent of jumping over the edge in an economic dive.

Tax Increases

Bush era tax cuts: expire
2010-2011 2% payroll tax cut: expires
Affordable Care Act taxes: kick in

Spending Cuts

Emergency unemployment benefits: expire
Budget sequester (cuts) from Super Committee failure: kick in
Previously legislated budget cuts: kick in
Defense cuts from Iran/Afghanistan reductions: kick in
Medicare payment rates for physicians: reduced

Affecting financial planning for businesses and households, the 8 fiscal cliff events have countless implications even before 2013. Then, during 2013, if they are implemented, many predict they will lead to diminished economic growth. Others point out though that rather than a fiscal cliff, the cuts in government spending represent fiscal discipline that will lead to a smaller deficit.

During 1969, we might have created another fiscal cliff. There was a 10% surcharge on personal and corporate income taxes, an increase in telephone and auto excise taxes, and a hike in social security payroll taxes. All were supposed to constrain inflation and pay for the Vietnamese War. They did, though, precede the recession that began during the fourth quarter of 1969.

Finally, just 2 definitions. Fiscal refers to the spending taxing and borrowing that the President and the Congress oversee. Fiscal policy is used to guide our economic trajectory and to decide which goods and services government should provide. By contrast, overseen by the Federal Reserve, monetary policy focuses on our supply of money and credit.

These businessinsider articles here and here have excellent summaries and analysis of the fiscal cliff while this CBO (Congressional Budget Office) paper provides a lot more detail. If ever you want to confirm the dates of a specific business cycle, this NBER (National Bureau of Economic Research) site is ideal.

Posted by: adminEcon
Tags: Bush tax cuts, deficit, discretionary spending cuts, fiscal cliff, fiscal policy, sequestration, super committee, unemployment benefits
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06.28.2012 | Understanding Germany

Are Germans thinking, “We did it and now it’s your turn?”

Ten years ago, Germany’s unemployment rate averaged more than 9% and economic growth was close to zero. Jobless workers, depending on their family status, were receiving 60-67% of their former wage for 32 months and 53-57% thereafter. Not only were the payments expensive but so too was the army of government employees needed to calculate them. In addition, because government regulations made it difficult to fire anyone, businesses avoided expansion.

With structural reform the solution, the German political leadership asked a Volkswagen executive, Peter Hartz, to lead a commission. In the economically depressed eastern half of the country, thousands of unhappy German workers protested in the streets.

The Hartz Commission targeted workers, businesses and government.

Hoping to diminish work disincentives, they lowered unemployment benefits. Workers would receive basic welfare after 12 months with a rent and utility subsidy.
Knowing that the right to fire made hiring more attractive, businesses could create temporary, low paying mini-jobs.
And finally, lower unemployment benefits and more business activity meant lower deficits.

Perhaps we could call it tough love.

Now, the German economy is healthy. In his Boomerang chapter on Germany, Michael Lewis says, that either the weaker euro states must join in a German funded fiscal union (sort of like the connection between Indiana and Mississippi) or the weaker nations must endure structural reform. “The first solution is pleasant for the Greeks [and the other peripheral states]. The second solution is pleasant for Germans but painful, possibly even suicidal, for Greeks.” (p. 141)

Knowing about German austerity, do you think Germans can accept less from their euro zone relatives?

This Planet Money podcast does a good job of briefly explaining German austerity and the Hartz Commission while these 2002-2005 news articles, here and here provide the ongoing narrative.

Posted by: adminEcon
Tags: austerity, France, Germany, Greece, Hartz Commission, Italy, mini-jobs, Spain, structural reform, temporary employment, unemployment benefits
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01.13.2012 | Unemployment Benefits and Costs

99, 26 or somewhere in between?

At the end of February, Congress again will have to decide about the length of unemployment insurance (UI) Described by the state of California to its residents, 99 remains the maximum number of weeks for receiving UI. Had Congress not acted during December, the benefit period would have reverted to 26 weeks.

How to decide what to support? Here are 4 possibilities:

Assess cost: UI is a program that is paid for by state trust funds that receive federal/state taxes. According to this GAP report, a majority of the states (map, p.10) had relatively weak trust funds that needed loans from the federal government. As of the end of 2009, no state had enough to cover 12 months of benefits.
Compare duration with other countries: Explained by University of Chicago Professor Casey B. Mulligan with a 2005 graph, the U.S. provided benefits for a relatively short time. Looking at OECD countries, the 3 at the top, Australia, New Zealand and Belgium, offered unending benefits to those who qualified. At the bottom were Italy, the U.K. and last, the U.S (6 months).
Compare duration with other recessions: Using 92 weeks as the maximum, Dr. Mulligan displays a spike in Nov. 2011 and Dec 2009. Next were Dec. 2008 and Feb. 1992 with federally mandated benefits lasting close to 72 weeks. After that, Mar. 2002 and Apr. 1975 are at 66 weeks or so.
Consider incentives: People who support longer lasting benefits say that when the money is spent, it stimulates the economy. Those for a shorter time period believe that benefits are a job search disincentive.

The Economic Lesson

Perhaps we should ask if unemployment is cyclical or structural. Cyclical unemployment subsides when the business cycle returns to prosperity. By contrast, structural unemployment will not go away because it reflects a changing economy that has eliminated “outdated” skills and noncompetitive industries.

An Economic Question: How might your opinion about the duration of unemployment benefits relate to whether joblessness is cyclical or structural?

Posted by: adminEcon
Tags: Australia, Casey B. Mulligan, cyclical unemployment, structural unemployment, unemployment, unemployment benefits
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