A friend sent me the following: WSJ / DECEMBER 9, 2010
Jobless Benefits' Effect on Unemployment By KELLY EVANS More jobless benefits, more unemployment. A likely rise in the U.S. jobless rate is the unfortunate reality of the government's move to fund extended unemployment benefits for another 13 months. The effect probably won't be huge, but it will be significant. And it may well hamper any recovery in investor and business confidence. A recent study by the Federal Reserve Bank of San Francisco found the unemployment rate at the end of 2009 would have been nearly half a percentage point lower-9.6%, instead of 10%-if jobless benefits hadn't been extended beyond their usual 26 weeks to as much as 99 weeks. On Thursday, the government will release its weekly tally of new applications for such benefits. Lately, they have trended down: An average 431,000 applications were filed in the four weeks through Nov. 27, which, while high by historical standards, is the lowest level in more than two years. Economists expect that decline continued last week, with claims falling 13,000 to bring the four-week average to 427,500. Yet that hasn't been accompanied by a similar improvement in the unemployment rate. It rose to 9.8% in November from a recent low of 9.5% over the summer. That is largely because the sluggish pace of job creation hasn't been strong enough to absorb growth of the labor force. The extension of jobless benefits is likely to worsen that trend for at least several months. For one, individuals not actively searching for work or willing to take available jobs may claim they are unemployed in order to receive benefits. That could artificially boost the size of the labor force, which is used to determine the unemployment rate. Another concern, as the San Francisco Fed notes, is that the extension of jobless benefits may "reduce the intensity" with which the unemployed search for work. Longer term, this could lead to a higher level of structural unemployment in the economy as workers' skills erode. Regardless, policy makers are hoping that extending benefits-along with other tax breaks-will generate enough short-term strength in spending and growth to overshadow any rise in the unemployment rate. That may prove wishful thinking. The late rapper Notorious B.I.G. probably put it best: "mo' money, mo' problems." My comment: The following is simply wrong: "individuals not actively searching for work or willing to take available jobs may claim they are unemployed in order to receive benefits. That could artificially boost the size of the labor force, which is used to determine the unemployment rate." Unlike in other countries, there is no link at all between one's status in the labor force according to the Bureau of Labor Statistics and one's ability to receive unemployment insurance benefits. There is no incentive to lie in a way that boosts the labor force. And the UI program is bureaucratic, aimed at insuring that absolutely no-one gets benefits without deserving them. The following is also wrong: "the extension of jobless benefits may 'reduce the intensity' with which the unemployed search for work. Longer term, this could lead to a higher level of structural unemployment in the economy as workers' skills erode." This totally ignores that the problem is a serious shortage of job vacancies.(The ratio of officially-defined unemployed workers to job vacancies is somewhere between 4 and 5.) If anything, that's what will cause the reduction of job-search intensity (and a swelling of the ranks of discouraged workers) and erosion of workers job skills (and job-seeking skills). These folks want unemployed workers to take the first job available and/or accept any wage, no matter how low. If a worker takes the first job available, it's quite likely that it does not fit his or her job skills. That means that (1) there's underemployed (or misemployed) labor, meaning that some people are working at jobs that are far below (or incongruent with) their skills and preferences; and (2) because of the severe job shortage, some workers who do have the right skills (and actually wants the job) will have a hard time getting that job, especially since those holding the jobs will cling to it (since it's so hard to find another job). If unemployed workers accept just any old wage, that encourages deflation which makes the macroeconomic situation worse. Long-term unemployment insurance (which, by the way, hardly replaces the income missed before the "spell" of unemployment started) facilitates the process of "sorting," matching the unemployed workers with the right skills and preferences with the employers who are looking for those skills. If it helps promote aggregate demand, so much the better. -- Jim Devine / "The conventional view serves to protect us from the painful job of thinking." - John Kenneth Galbraith _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
