How Democratic Policies Will Increase Unemployment
Doc Palmer explains:
The concept of a “natural unemployment rate” follows from looking at unemployment as a search process. According to this theory, people search for a new job so long as the expected benefits of additional search exceed the expected costs of additional search. Once the expected costs of additional job search exceed the expected benefits, people stop searching and take the best offer they have found (and that is still available) to that point.
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In Canada, one reason the natural unemployment rate seems to have declined from its peak in the 1980s is that EI (“employment insurance”, the current euphemism for unemployment benefits) has become less lucrative and other policies have also been altered with the result of somewhat lowering the height of the social safety net. One result has been that people search less and for shorter periods of time when they are unemployed, thus lowering the unemployment rate.
You mean that (socialized-medicine) Canada is, in at least one respect, less welfare-statist than the U.S.? Go figure.
Now comes word, meanwhile, that President-Elect Obama hopes to significantly expand unemployment benefits.
One of the mitigating joys of Career 2.0 is receiving 39 weekly direct deposits of $405 from the New York State government. That’s a puny fraction of the well over $100,000 in state income taxes I’ve paid over the years (not to mention New York City income taxes, state sales taxes, etc.), so suffice it to say that I, qua libertarian, am hardly ethically conflicted about it. And while I do faithfully perform all the required job-seeking activities that attach to receiving unemployment insurance, let’s just say I’m not in any rush. “Expected benefits” versus “expected costs” indeed.
Meanwhile, as I commented over at EclectEcon:
Note that the debates in the U.S. over extending benefits are increasingly focused, not on the “automatic stabilizer” paleo-Keynesian argument, but instead on neo-liberal notions of “humaneness.”
If you subsidize something, you get more of it. So yes I too think the natural rate of unemployment in the U.S. will undoubtedly rise.
And I am Exhibit A.
Filed under: Economics & Finance, New York City & State, Personal Topics, Taxation & Fiscal Policy