May 03, 2004

Worker's welfare

Recently I started subscribing to The Heritage Foundation's PolicyWire, and have actually enjoyed the daily columns pouring in my inbox. Even if I disagree with Heritage's premises—that government deserves extinction, plain and simple—the arguments are usually tightly spun and fun to try to unravel. Take, for instance, Paul Kersey and Tim Kane's three simple arguments against extending unemployment insurance. According to Kersey and Kane, not only is unemployment insurance unnecessary in the face of a booming job market (!!), but such welfare only causes dependency and laziness:
Unemployment insurance (UI) makes unemployment spells last longer. By making unemployment more attractive (or at least less unattractive) than it would otherwise be, UI benefits tend to increase the “reserve wage” of unemployed individuals who are considering new job offers—a possible employer will have to offer a higher wage, or some other inducements, before a new job is accepted.

Research has shown that the likelihood that a UI recipient will find a job rises dramatically as exhaustion nears. Research has also shown that employee recalls increase as benefits near exhaustion, suggesting that some employers may time unemployment spells to coincide with the length of unemployment insurance benefits.
This is a bit muddled. I'd like to know what kind of "research" they've used here—nothing is cited, of course. As the presumably non-partisan Congressional Budget Office found, the length of unemployment has risen for those not receiving unemployment insurance. So nearly everyone is having a tough time finding jobs, not just those supposed welfare junkies.

Moreover, if Kersey and Kane's 'dependency thesis' is correct, then we should have seen a dramatic upswing in employment after the Temporary Extended Unemployment Compensation program ran out in December. All those lazy bums got off the dole, so why didn't they just find jobs? But in fact, long term unemployment rose to its highest levels around that time.

On the other hand, 354,000 workers exhausted their unemployment insurance in March, a one-month record. And then in April, as everyone knows, the country saw relatively huge employment gains.

So who knows? Maybe all those folks actually found jobs, all simply because their federal aid ran out in March. But the evidence doesn't look great for the dependency thesis. It may hold true in normal conditions, but at the moment, we really are facing a bit of an unemployment problem that can't be blamed on mere welfare-induced lethargy.
-- Brad Plumer 10:51 PM || ||