Incentives Not to Work

The Wall Street Journal ^ | APRIL 13, 2010

[BradtotheBone]

"The second way government assistance programs contribute to long-term unemployment is by providing an incentive, and the means, not to work. Each unemployed person has a 'reservation wage'—the minimum wage he or she insists on getting before accepting a job. Unemployment insurance and other social assistance programs increase [the] reservation wage, causing an unemployed person to remain unemployed longer."

Any guess who wrote that? Milton Friedman, perhaps. Simon Legree? Sorry.

Full credit goes to Lawrence H. Summers, the current White House economic adviser, who wrote those sensible words in his chapter on "Unemployment" in the Concise Encyclopedia of Economics, first published in 1999.

Mr. Summers should give a tutorial to the U.S. Senate, which is debating whether to extend unemployment benefits for the fourth time since the recession began in early 2008. The bill pushed by Democrats would extend jobless payments to 99 weeks, or nearly two full years, at a cost of between $7 billion and $10 billion. As Mr. Summers suggests, rarely has there been a clearer case of false policy compassion.

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Associated Press

Larry Summers .Mr. Summers is merely reflecting what numerous economic studies have shown. The Federal Reserve Open Market Committee put it this way in its January minutes: "The several extensions of emergency unemployment insurance benefits appeared to have raised the measured unemployment rate, relative to levels recorded in past downturns." It continued: "Some estimates suggested it could account for 1 percentage point or more of the increase in the unemployment rate during the recession." That's more than one million jobless

[Rockitz]

Looks like Larry needs to get with the program. Democrats can’t win elections if they can’t buy votes.

[Boiling point]

It would be neat if someone could correlate the % of unemployed to TEA party attendance. That might spawn some action on the jobs front.

[A_perfect_lady]

Unemployment changes people, it really does. I have a very dear friend who worked steadily and hard for 23 years. Then she got laid off. That first month she was mortified and searched very hard for another job. Then she got her first unemployment check and realized that it covered her bills. She gradually relaxed into it and now it’s been a year. She has gone from “I have GOT to find a job,” to “I’m not giving up my unemployment for THAT!” and “I’m not commuting, screw that.” and so on. She’ll ride that unemployment for as long as it holds out. I love her to death but I have never seen such a change in attitude.

[givemELL]

With wage earners not able to support a marriage or a house or children, there will be no incentive to reach for those mainstays of past-national life. Fannie-Freddie are not semi-private anymore and the govt. owns over half of the US mortgages with more to be owned. Before the govt. can redistribute housing, it must own and control it. In a redistributive mode, the govt. is ensuring that favored renters are going to be in and previous owners out. There will be no recovery of the housing markets.

In fact, the historical experience of the “company store” model that Tenn. Ernie Ford sang about in “Sixteen Tons” seems to be coming around again in which the worker never gets out of debt. WE have a whole country owned by outsiders via debt and Tenn. Ernie Fords’ tune seems more relevant every day.