Why did the unemployment rate rise so rapidly — from 7.2 per cent in January to 10.2 percent in October? It was clearly the administration’s “stimulus” bill — which in February provided $40 billion to greatly extend jobless benefits at no cost to the states.
As Larry Summers, the president’s top assistant for economic policy, noted in July, “the unemployment rate over the recession has risen about 1 to 1.5 percentage points more than would normally be attributable to the contraction in GDP.” And the rate has moved nearly a percentage point higher since then, even though GDP increased. Countries with much deeper declines in GDP, such as Germany and Sweden, have unemployment rates far below ours.
Summers knows why the US rate is so high. He explained it well in a 1995 paper co-authored with James Poterba of MIT: “Unemployment insurance lengthens unemployment spells.”
Another interesting factoid buried in the article is this:
(Incidentally, the “mercy” of longer benefits does no long-term favors: The literature is quite clear that a prolonged period on unemployment tends to depress income for years after you finally go back to work.)
Worth thinking about.
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Here is what the Germans have done, according to Krugman:
“Alternatively, or in addition, we could have policies that support private-sector employment. Such policies could range from labor rules that discourage firing to financial incentives for companies that either add workers or reduce hours to avoid layoffs.
And that’s what the Germans have done. Germany came into the Great Recession with strong employment protection legislation. This has been supplemented with a “short-time work scheme,” which provides subsidies to employers who reduce workers’ hours rather than laying them off. These measures didn’t prevent a nasty recession, but Germany got through the recession with remarkably few job losses.”
Germany has a different work culture that allows them to implement those types of plans. We discussed this a few days ago.
When the government pays people 50 to 60 percent of their previous wage to stay home for a year or more, many of them do just that.
This is an ugly slur on the unemployed.
It is not even accurate. To continue receiving benefits you have to prove you are looking for a job, and you have to take one you are offered.
Most likely it is a reporting phenomenon where more people are reporting themselves unemployed.
People don’t want to be on unemployment. In a light recession when everybody expects things to pick up soon, lots of people won’t even file for unemployment and never turn up in the statistics; they just muddle through until they get another job.
But this recession is deeper and more gloomy. Now there are no jobs to be had, at least not in the kinds of numbers that would make a dent in the unemployment statistics. What kind of bastard would send people out to look for a job that isn’t there?
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