Ok, I love this. Krugman is talking about the conservative claim Unemployment Benefits are raising the unemployment rate. I love :him going here for two reasons:
1. He's right and those who try to blame the victim the victim for their unemployment-'if the government didn't coddle these people with such lavish benefits they'd get a job!"
2. It will drive Sumner crazy.
Sumner is always trying to protect this particular supply side sacred cow. The last time Krugman criticized this idea, Krugman of course came back at him. My guess is we'll be hearing more from Sumner. Here was the last time back in June:
"One problem is that if you lower the LRAS curve by 1%, then the entire business cycle is shifted downwards by 1%. Real GDP is 1% lower in both booms and recessions. That’s the natural rate hypothesis. We see this pattern in European countries like France and Italy, where unemployment cycles around a relatively high natural rate, say 8% to 10%."
1. He's right and those who try to blame the victim the victim for their unemployment-'if the government didn't coddle these people with such lavish benefits they'd get a job!"
2. It will drive Sumner crazy.
Sumner is always trying to protect this particular supply side sacred cow. The last time Krugman criticized this idea, Krugman of course came back at him. My guess is we'll be hearing more from Sumner. Here was the last time back in June:
"One problem is that if you lower the LRAS curve by 1%, then the entire business cycle is shifted downwards by 1%. Real GDP is 1% lower in both booms and recessions. That’s the natural rate hypothesis. We see this pattern in European countries like France and Italy, where unemployment cycles around a relatively high natural rate, say 8% to 10%."
"But Krugman also forgets that the SRAS curve is impacted by UI. If workers are pickier about accepting crummy new jobs, then nominal wages are less flexible, and the SRAS curve shifts to the right more gradually than usual. The self-correcting mechanism may work, but it will take longer. During the interim the unemployment rate is higher than it would otherwise be."
"I think Krugman also confuses stylized models with reality, which is much messier. So while I agree with Krugman that a demand shortfall is the major factor restraining RGDP at the moment, in particular industries like housing construction there are already shortages of skilled workers. In fairness, the aggregate wage data shows no sign of aggregate labor shortages, so the effect of these spot shortages on unemployment is small, but not zero."
"Here’s another mistake:
Here’s what is true: there’s respectable research — e.g., here — suggesting that unemployment benefits make workers more choosy in the search process. It’s not that workers decide to live a life of ease on a fraction of their previous wage; it’s that they become more willing to take the risk of being unemployed for an extra week while looking for a better job.
"Actually it’s both. Unless you have lived a very sheltered life, then you’ve occasional come across poorly educated workers who hate their crummy jobs. (I haven’t led a sheltered life.) These workers will sometimes jump at the chance for a 99 week paid vacation. I would too. Yes, this is hard for a college professor to understand, as the UI benefits are low, it hurts your reputation, it reduces your prospects for the future, etc. But I’ve known a number of people who don’t care about any of that. Life is complex. Some have a bit of saving. Others pick up extra change working part time in the underground economy. Don’t get me wrong, this group is only a tiny percentage of the labor force in America, but it’s not zero."
Ok. You have to love this. Sumner is actually trying to claim that he hasn't lived a sheltered life. And he substantiates this claim by what? Asserting that he's met some poor losers who make so little money they actually would make more on unemployment. I don;t get where he meets these bottom feeders from. As he says, in his world of tenured professors, collecting UI hurts your reputation. I would be shocked if even knowing people these deadbeats don't hurt your reputation among the tenured professor crowd.
I got no idea where he might have met these people so lazy and yet so poor that UI benefits are a better deal. My guess is the only person he's known on UI is: me. I've been on UI, though I'm not actually poorly educated-I have a Bachelor's in accounting and am no more than two classes short of my Masters in finance-it may even be only 2 class I'm not sure. Of course, when I'm done I owe huge loans.
What you have to understand is that the most you can collect on UI is $405 a week-even if you made six figures a year. What you'll find is that the formula for UI usually gives you about half what you were making weekly at your highest paying job over the last 18 months. Up until about $800 a week that is. Once you make over $810 then it slowly diminishes as a percentage of your old weekly pay.
I was on UI for a number of weeks in 2011 and 2012. Speaking for myself I certainly wanted to work. The most basic reason of course is I need money. I have been working since September of last year in the wonderful world of telemarketing.
Did I ever turn down jobs because I had UI? I do remember once talking with someone at Dunkin Donuts about work there and then considered that it would hardly be worth it if they pay minimum wage and it's only a part time job. After all, I was getting the princely sum of $144 a week ,so yes, it would hardly be worth getting a job that paid less after taxes. One of the many problems with UI is that it allows you to make very little money before kicking you off.
Now I didn't get offered a job in this case-I had simply asked a cashier for an application. However, I did reflect on this. Yet, let's suppose I had received an offer from D&D which after taxes would have made me less than UI. What is the macro benefit forcing me to take this job at lower pay than UI? It would actually be less money in the economy for AD. On a personal level it wouldn't improve my life as it wouldn't help towards getting me back on my feet again.
.
True, one possible benefit I could derive is that it might fill up my work experience-employers are merciless about 'gaps' that sheltered folks like them can't relate to. Still, D&D will hardly get me back into my field-accounting. In addition, the time I spent making less money than UI would have paid is an opportunity cost in time: I could have been looking for better jobs while spending more money thanks to UI in the economy.
In Krugman's post today he makes the point that most of the long term unemployed are not people who recently lost jobs anyway. So weakening UI benefits wouldn't help the long term unemployed.
When Sumner moderates the argument against UI so much by saying it brings up the unemployment rate but not by much, it ends up being perhaps true but trivial. This is something that Sumner seems wholly unaware of-despite how 'unsheltered' he effects to be.
Maybe we could cosmetically bring down the UR a few tenths of a percent by kicking people off UI but how would this actually improve either their own lives or the macroeconomy? In both cases it wouldn't; it would actually make things worse.
P.S. If we did want to fix this problem-to the extent that there is, and it is probably small potatoes-the way to go about it would be to do something that even Republicans were for: until Obama suggested it back in the Fall of 2011:
Allow workers to continue to collect UI after they go back to work for a certain amount of time: those who need it more, ie, make less money at their new jobs, could hold onto UI longer.
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