Thursday, December 9, 2010

Short Answer: No. Long Answer: You're an Idiot

A Bloomberg news and right wing propaganda factory blog asks Do Jobless Benefits Raise Unemployment? How do I know it's a right-wing propaganda machine? It uncritically links to Redstate as an "influential blog," which is equivalent to linking to Stormfront as a "popular blog." The claims are true among a very small audience: in Erick Erickson's case, right wing activists; in Stormfront's case, neonazis. Regardless, the actual answer to the question is a resounding no. There is no causal link between jobless benefits and work ethic.

Moving past the profound take-your-pick bias or stupidity of the author, the assumption that welfare and motivation to work are interrelated seems like an idea rooted in microeconomics. The argument posits a rational preference of available welfare to available work opportunities, and predicts behavior based on microeconomic theory: equal utility with a lower cost will be the preferred. If a person can get as much return from a cost by receiving welfare, why would they work? This level of analysis is evidence-free, it misses other important incentives to work like social stigma and views of self-worth, and it turns out to be wrong on its own terms.

The comparison, when one forces a conservative making the argument to graph it, between welfare and work is an apples-to-bananas comparison. They will plot an hourly wage which represents employment, then draw the level of money which welfare provides. The argument goes that welfare provides a viable alternative to employment when the number of hours worked creates an income lower than the level of the welfare line.

Job applicants are not, however, presented with two options when they seek employment. They are presented with myriad possible avenues for getting a job, most of which will not pay out. Job seeking requires investments of time (e.g. writing cover letters and going to job fairs) and money (e.g. dry cleaning for your interview clothes). The unemployed may have the opportunity to sit out of the labor market for a short period of time, but there is no evidence that anybody at any end of the economic spectrum is content to collect sub-poverty line income solely from the government. Unemployment insurance subsidizes the search for a new job. Without it, job applicants must dip into savings whenever they contemplate going to meet a potential employer. Government paying for the cost of the interaction between an unemployed worker and a hiring business just makes sense. Without these interactions, no job could be created. Only the most ideological free market supporters should oppose unemployment insurance. Congressional Republicans have shown that they are radical supporters of a fairy-tale economic system in which innate market failures are impossible. Their houses don't border creeks below coal mines and aren't in neighborhoods where getting a job selling drugs is as viable (and more prestigious) an option as getting one at the corner store, so they think market failures don't exist.

The most basic test of the assumption that welfare leads to lower incentives to find work would be to compare the unemployment rate in three types of countries: welfare states, market-oriented states, and states with very little safety net. I'm willing to bet big that the unemployment rate in Somalia is worse than that in the United States. Sweden's unemployment rate is 8.1%, far lower than the American 9.8%. It's not full employment, but we are in the middle of a global economic slump. Norway reports an absurdly low 3.4% unemployment rate. These are highly welfare-centric states, yet they have lower unemployment than the U.S. and far lower unemployment than Sudan (18.7%), a state which has very little welfare. The conservative theory that welfare inhibits work ethic would predict the exact opposite relationship. So the long answer to the question "Do Jobless Benefits Raise Unemployment?" is "Jobless benefits seem to lower unemployment." To be fair, even the bloomberg News article I link to doesn't really believe this arch-conservative myth:
In truth, unemployment benefit extensions do both—they raise the jobless rate a bit, and they make the economy grow faster. What's clear is that extending jobless benefits makes more sense when the unemployment rate is exceptionally high, as it is now, at 9.8 percent in November. Although there may be a lot of jobs open at any given moment, most are quickly filled because there are so many job seekers. That makes the 3.4 million jobs open on the last day of October seem less impressive. And because aid to the jobless is almost immediately spent (as opposed to tax refunds for the wealthy), it is the most effective means of stimulating demand, the nonpartisan Congressional Budget Office said in a Sept. 28 report.
But of course, Redstate's Erick Erickson doesn't know that, and neither do the small group of activists that parrot his drivel. Actually taking data into account isn't their strong suit, and neither is figuring out which experts' views are worth trusting on an issue. My evidence for that last charge? They frequent the Redstate website.

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