Recently, Denmark decided that 4 years of unemployment benefits were too long. Shrinking their duration to 2 years, they said that 1) the longer people are out of a job, the harder it is to find one and 2) too many people wait for benefits to expire before they decide to work again.
Does Denmark’s decision relate to the U.S.? According to Harvard economist, Robert Barro “Yes.” Responding to Congress’s recent extension of unemployment benefits to 99 weeks, he says that the U.S. would have lower unemployment if benefits are not extended. By contrast, presenting “a chart that screams ‘Extend Unemployment Benefits,’” Berkeley economist Brad DeLong disagrees.
The Economic Lesson
A slate journalist says that the unemployment benefits debate is actually between those who believe unemployment is primarily cyclical and those who say it is structural.
The cyclical advocates say that the current econmic contraction is the source of the high unemployment numbers. Consequently, more government spending would be appropriate.
By contrast, structural unemployment refers to a permanent shift in economic production. For example, when we moved from typewriters to computers, we had a structural shift which temporarily created a mismatch between skills and new jobs. Structural believers do not believe that government necessarily has the answer through its current recession response.