Six years have passed since the United States economy entered the Great Recession, four and a half since it officially began to recover, but long-term unemployment remains disastrously high. And Republicans have a theory about why this is happening. Their theory is, as it happens, completely wrong. But they’re sticking to it — and as a result, 1.3 million American workers, many of them in desperate financial straits, are set to lose unemployment benefits at the end of December….
Here’s the world as many Republicans see it: Unemployment insurance, which generally pays eligible workers between 40 and 50 percent of their previous pay, reduces the incentive to search for a new job. As a result, the story goes, workers stay unemployed longer….
Proponents of this story like to cite academic research — some of it from Democratic-leaning economists — that seemingly confirms the idea that unemployment insurance causes unemployment. They’re not equally fond of pointing out that this research is two or more decades old, has not stood the test of time, and is irrelevant in any case given our current economic situation.
Forget studies. Think about it: How is it logically possible that paying people to be unemployed doesn’t disincentivize them from finding work? Would you have more incentive to find a job if you were getting a check from the government for being unemployed or if you had zero income? You don’t need studies to prove common sense to you.
Let’s see what one self-described liberal economist has had to say about unemployment benefits in this regard:
Side Effects of Public Policy
In addition, public policy designed to help workers who lose their jobs can lead to structural unemployment as an unintended side effect. Most economically advanced countries provide benefits to laid-off workers as a way to tide them over until they find a new job. In the United States, these benefits typically replace only a small fraction of a worker’s income and expire after 26 weeks. In other countries, particularly in Europe, benefits are more generous and last longer. The drawback to this generosity is that it reduces a worker’s incentive to quickly find a new job. Generous unemployment benefits in some European countries are widely believed to be one of the main causes of “Eurosclerosis,” the persistent high unemployment that afflicts a umber of European economies.
Returning to his column, after thus claiming that the idea that unemployment benefits disincentivize workers from finding jobs is “wrong”, he admits that it is right, but attempts to downplay its effect:
The view of most labor economists now is that unemployment benefits have only a modest negative effect on job search — and in today’s economy have no negative effect at all on overall employment.
In other words, Krugman admits: Yes, it’s true that unemployment benefits do disincentivize workers from finding jobs, but only modestly. But his source (see link) doesn’t say that unemployment benefits have had only a modest negative effect. It rather is referring, when claiming “modest” effect, to the extension of unemployment benefits implemented in 2008. This program extended the period of time individuals can collect unemployment payments by up to 13 weeks. So instead of collecting for generally about 6 months, an individual can collect for up to 9 months. In other words, what Krugman’s source actually asserts is that extending unemployment benefits by a few weeks or months has only a “modest” additional effect in terms of disincentivizing individuals from finding jobs. It doesn’t say that this public policy itself on the whole has only a “modest” effect.
But Krugman isn’t done. He goes on to argue that paying people not to work actually helps create jobs:
On the contrary, unemployment benefits help create jobs, and cutting those benefits would depress the economy as a whole.
How so? He argues:
Businesses aren’t failing to hire because they can’t find willing workers; they’re failing to hire because they can’t find enough customers. And slashing unemployment benefits — which would have the side effect of reducing incomes and hence consumer spending — would just make the situation worse.
That is, cutting unemployment benefits would leave those individuals collecting it with less money in their pockets, so they will spend less, so businesses won’t hire because of that lack of demand.
The problem here is that Krugman is committing the “broken window” fallacy. He looks at the money in the jobless individual’s pocket but fails to see that to get it there, it had to be taken out of the pocket of someone who is productive. He sees how the person collecting unemployment benefits spends the money, but fails to see how the person whose tax dollars paid for this benefit would have otherwise spent that money had the government not expropriated it from him by force.
All just another example of why Paul Krugman is a hack and a fraud who can’t be taken seriously.