Wednesday, 04.09.08
Soft Landings
Photo by Bill Pugliano/Getty Images
The hidden side of the Clinton economy
October 1998
John E. Schwarz writes about the indignity of many American jobs.
Should the government extend unemployment benefits? It usually doesn't, except in a recession, to cushion the impact on vulnerable households. With the labor market headed south, Congressional Democrats have brought up the possibility once again. President Bush, who wanted the focus kept on tax rebates, is still demurring, and on Tuesday, he asked Congress to give the existing stimulus package time to work.
The classic argument against generous unemployment benefits is that by blunting the incentives to take a new job, they increase friction in the labor market and actually extend unemployment. But the job market seems to be doing this on its own. Over the last few decades, the labor market has had a harder time absorbing displaced workers. The recoveries from the recessions in the early part of the last two decades were notable for the slow recovery of job growth, and the lengthening duration of spells of unemployment.
The most plausible culprit seems to be a structural shift in the economy. Recessions used to be characterized by cyclical unemployment: during demand downturns, companies laid off workers whom they called back when business picked up. Over the last two decades, however, much more of the unemployment seems to have been structural. Suffering industries permanently downsized, and trade or technology improvements eliminated entire job categories. Workers with specialized skills were stranded.
Even before the economy is officially in a downturn, long-term unemployment seems to be rising. More workers are exhausting their unemployment benefits than in previous business cycles. And the number of discouraged and marginally attached workers -- people who are leaving the job search process because they've lost hope -- is also relatively high. If expanded unemployment benefits keep those people in the game long enough to find work, everyone profits.
It seems hard to argue against benefit expansion. The cost is fairly moderate, the benefit targets those who clearly need it, and it is more likely to provide economic stimulus than most other forms of government spending. Moreover, America's benefits are comparatively sparse; there's little danger that we'll see European-style labor-market stagnation because workers can collect $300 a month for a full year, rather than half. The benefits will probably fairly modest too, but at least they'll slightly ease the sufferings of workers buffeted by economic forces beyond their control.
The second stimulusErik Eckholm reports for the New York Times on the louder calls in Congress for extending unemployment benefits. |
Free lunch for monthsJames Sherk and Patrick Tyrrell argue that unemployment insurance reduces the incentive to work and promotes lengthy joblessness. |
Moth-eaten safety netRuth Mantell insists that our current programs are out of date and must be widened to include more of the labor force. |
Teach a man to fishWilliam B. Conerly analyzes the European model and concludes that unemployment benefits "must be accompanied by a strong work-search expectation." |
(2)
Fred � you are correct in that Megan is low in her estimate of the size of the average unemployment benefit, but extending benefits to one year will do a lot more to keep the economy going than tax rebates. Unemployment benefits are usually spent immediately on necessities such as mortgage payments and groceries. In a shaky economy, worried consumers will use sizable tax returns to pay down debt or put in the bank- this is good, but has little immediate impact on the economy. I am currently receiving unemployment ($420. / wk), and spend each check immediately on groceries, utilities, mortgage etc. I will also receive a large tax return, which I will use to pay down credit card debt, doing little to keep the economy going. If you want immediate stimulation for the economy, give benefits to those who are close to the edge.
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"there's little danger that we'll see European-style labor-market stagnation because workers can collect $300 a month for a full year, rather than half."
Come on Megan, do some basic homework next time. Unemployment benefits aren't $300 per month; they vary by state (and by income), but here in NJ they max out at about $500 per week. Extending unemployment benefits will increase unemployment, by giving the unemployed an incentive to stay out of work longer and be more selective in accepting new jobs. It would be better to temporarily increase the size of unemployment checks in the first month of unemployment, than to extend them.
Posted by Fred | April 9, 2008 5:32 PM