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How Has The Safety Net Affected the Unemployment Rate?

by Elaine Schwartz    •    Feb 5, 2013    •    TIME TO READ: 1 minute

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.

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.

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