Unemployment Duration

Most research shows that unemployment benefits/insurance increases the duration of unemployment.

In light of James’ post “Unemployment Duration Record High,”I thought one thing that should be pointed out is the research on the duration of unemployment and the effect of unemployment benefits. Most research shows that unemployment benefits/insurance increases the duration of unemployment.

For example we have this paper, “Unemployment insurance and duration of unemployment : evidence from Slovenia’s transition“.

Between 1990 and 1992 in Slovenia, recipients of unemployment insurance (UI) benefits tended to remain (formally) unemployed until their benefits expired, before taking a job. Institutional set-up suggests, and labor surveys show, that many of the recipients were actually working while collecting UI benefits. In the spirit, if not in the letter of the law, the UI system was abused. The author shows that the escape rate of the recipients of unemployment compensation to employment increased dramatically just before the potential exhaustion of unemployment benefits – and decreased equally dramatically after benefits were exhausted. When grouped by the potential duration of benefits, unemployment length varies significantly. The unemployed with longer potential benefits stay unemployed longer. Because these groups differ in their characteristics (for example, in age), this does not prove the”waiting behavior”of the recipients. However, exits to employment dramatically increase just before exhaustion – and that does prove waiting behavior. The pattern of an increased escape rate just before benefits are exhausted and its dramatic fall thereafter is more rigorously demonstrated using hazard model estimation. Possibilities for informal employment are abundant in Slovenia, and the environment of transition economies generally seems conducive to misuse of the UI system. Legislative loopholes and failure to enforce the labor code allowed the unemployed to work and to collect benefits. The monitoring of job searches was also lax. The author’s calculations suggest that reducing the duration of benefits would reduce the incidence of unemployment, its duration, the amount spent on UI benefits, and the inefficiencies generated by raising taxes to finance unemployment insurance. At the same time, reducing the duration of benefits would not impair job matches or crowd out jobs for nonrecipients. True, despite increased efficiency generally, the workers with the least job mobility might suffer hardships for the least mobile group and greater efficiency generally would have to be resolved in the political sphere. Redesigning the system for better targeting would be less controversial. One way to reduce UI spending without seriously curtailing incentives to work would be to reduce the benefits in proportion to earnings from irregular work. Another possibility is stricter monitoring of the job searches of the unemployed. To reduce spending and make”double dipping”less attractive, old-age insurance could be removed from the package of benefits the UI system offers. Also, counselors who help the unemployed find jobs (and who may thus develop a close relationship with them) should perhaps not be expected to be able to make impartial decisions about disqualifications for benefits; someone else should do that. In addition to better targeting, a”benefit transfer program”- a voluntary program that converts UI benefits Also, counselors who help the unemployed find jobs (through vouchers) into hiring subsidies – seems particularly attractive for Slovenia and other transition economies. In a way, such a program would legalize the”double-dipping”that has been taking place in Slovenia and possibly elsewhere. It would legalize practices that have undermined the system’s credibility. But it might improve fiscal savings while sustaining the incentive to find jobs.

Admittedly not all that impressive given that the U.S. is not Solvenia and the two countries are in different phases of economic development. However, there is also this article from Econometrica, “Unemployment Insurance and Unemployment Spells“,

This paper tests the effects of the level and length of unemployment insurance benefits on unemployment durations. The paper particularly studies individual behavior during the weeks just prior to when benefits lapse. Higher unemployment insurance benefits are found to have a strong negative effect on the probability of leaving unemployment. However, the probability of leaving unemployment rises dramatically just prior to when benefits lapse. Individual data are used with accurate information of spell durations, and the level and length of benefits. The semiparametric estimation techniques used in the paper yield more plausible estimates than conventional approaches and provide useful diagnostics.

And we also have this paper by Lawrence Katz and Bruce Meyer, “The Impact of the Potential Duration of Unemployment Benefits on the Duration of Unemployment” from the Journal of Public Economics. It has not abstract that is easily copied over, but the conclusions are largley the same, a one week increase in unemployment benefits would raise unemployment duration by 0.16 to 0.2 weeks with the rate of escape from unemployment rising as the end of unemployment benefits approaches.

Then there is this paper, “Disincentive Effects Of Unemployment Insurance Benefits: Maximum Benefit Duration Versus Benefit Level“,

This paper uses a unique dataset about unemployment insurance recipients and their exits to employment in Estonia to investigate the effects of benefits on unemployment duration. The administrative data used clearly pinpoints total unemployment spells and exits to employment. Both nonparametric and parametric estimations show that unemployment benefits have a strong and significant disincentive effect on hazard rates to exit into employment, just as search theory predicts. The effects of benefits are stronger and more homogeneous when the maximum duration of unemployment insurance benefit is longer. Unemployed people eligible for shorter unemployment insurance benefits are influenced more by the size of benefits and changes in the benefit replacement rate. Also, for both groups there is a rise in hazard rates during the benefit period and a sharp drop straight after.

And finally, there is this paper, “Quasi-Experimental Evidence on the Effects of Unemployment Insurance from New York State“,

This paper examines unemployment duration and the incidence of claims following a 36 percent increase in the maximum weekly benefit in New York State. This benefit increase sharply increased benefits for a large group of claimants, while leaving them unchanged for a large share of claimants who provide a natural comparison group. The New York benefit increase has the special features that it was unexpected and applied to in-progress spells. These features allow the effects on duration to be convincingly separated from effects on incidence. The results show a sharp fall in the hazard of leaving UI that coincides with the increase in benefits. The evidence is also consistent with a substantial effect of the benefit level on the incidence of claims and with this change in incidence biasing duration estimates. The evidence further suggests that, at least in this case, standard methods that identify duration effects through nonlinearities in the benefit schedule are not badly biased.

One article that suggests that unemployment benefits might acutally lower unemployment duration is, “The Effect of Unemployment Insurance on Unemployment Duration“, Journal of Labor Economics by Ben-Horim and Zuckerman.

This paper shows that unemployment insurance benefits could decrease the expected duration of unemployment induced by search. An unemployed person who has to fin ance search from limited resources may use the benefits to intensify search effort and lower the expected duration of employment.

The bulk of research in this area indicates that lengthening unemployment insurance will lengthen the duration of unemployment. Have unemployment insurance benefits been increased during this recession? Yes. So, the graph that James linked could be partially explained by the increases in unemployment insurance benefits, mainly the extensions over time. Still the conclusion that many might simply be unemployable for sometime is a very valid concern. Right now we have an over supply in housing. During the housing bubble we clearly allocated too many resources towards building housing and some of those resources are people who worked in that industry and likely aquired skills for that industry and now simply wont be needed in that industry for a considerable amount of time. For economists, this is what we’d call a “unit root” problem, or in laymans term for the housing construction business we are likely looking at an “L-shaped” recession.

FILED UNDER: Economics and Business, Government, US Politics
Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.

Comments

  1. john personna says:

    All else being equal, increasing unemployment benefits should certainly increase unemployment.

    That’s probably why we didn’t increase them when unemployment rates were low, or when mean times of unemployment were stable.

    Of course, it looks a lot different when you realize that the increases in benefits were a trailing move. Unemployment increased first. The term of unemployment stretched. And congress reluctantly drew out benefits, a little bit at a time, to correspond.

    These are still temporary measures, are they not? And not designed to last to the growth side of the business cycle? That would be bad. We wouldn’t want high benefits when many jobs were going unfilled. Of course we aren’t there right now.

  2. just me says:

    I think there is probably some truth to the idea that increasing unemployment benefits may increase the duration of unemployment, although I think that truth may not necessarily apply to an economic situation like the current one.

    Back in the late 90’s several friends of ours worked for a company that was purchased by another company and lost their jobs in the restructuring to the new company’s organization. Most of them did not really actively begin looking for work until a couple of months before their benefits would run out. One friend even made the comment that he viewed his time on unemployment as down time to get things done on his house and other stuff and felt no need to look for employment as long as he still had benefits. This particular friend had a master’s degree and was fairly high up in management before his layoff and wasn’t all that worried about finding a new job, and within 30 days of him actively looking for a new job he found one he like and has worked for that company ever since.

    But there was a different economy in the late 90’s-and I think anyone getting laid off in the current climate isn’t likely to view their time on unemployment as a mini vacation/down time and will likely be stressed about the likelihood of finding a new job.

    I do think at some point the benefits have to stop being extended, because it isn’t sustainable, but I am not sure yanking the safety net is going to result in all those unemployed finding jobs.

  3. Or, you know, the problem might be that the recession we’re in is a function of major structural problems in the economy that are largely a function of the implementation of conservative political theory — including, deregulation of financial services which allowed the financial services firms to divert profits from the hands of business into their own coffers, tax-cut induced deficits that reduced the ability of the federal government to implement sufficient counter-cyclical fiscal measures, and tax-cuts on the wealthy that served to create massive inequalities of wealth to the point that it is causing a drain on economic growth and recovery due to depressed levels of discretionary income for vast segments of the population.

    The advantage of my argument, of course, is that it allows for a consistent explanation of both the depth and durability of the recession — which I predicted back in 2008, btw, at a time where you were repeating the John McCain line that the “fundamentals” were strong. At the time when I was arguing that the recession would be extreme deep and long-lasting, you called me an economic illiterate. But interestingly, this illiterate has been closer to the mark, no?

    Now, what you are doing here is creating a set of auxiliary hypotheses to explain away why your predictions have been consistently wrong. Which I get. And as a narrow matter, of course, you are right that it is plausible that the extension of benefits worsens unemployment. But there is a structural issue that, I would argue, you seem determined to ignore.

  4. Steve Verdon says:

    Or, you know, the problem might be that the recession we’re in….

    Yes, its possible, but it could also still be true that increasing the duration of unemployment insurances is also having an effect (which you, amusingly, admit might actually be true). Note I didn’t say it was simply unemployment insurance.

    The advantage of my argument, of course, is that it allows for a consistent explanation of both the depth and durability of the recession — which I predicted back in 2008, btw, at a time where you were repeating the John McCain line that the “fundamentals” were strong.

    This is a lie. First off, I was noting the weakening nature of the economy for some time, most notably payroll employments rather dismal numbers for sometime. Second, I never said the fundamentals were strong. At worst, early on when the recession was dated I noted that the data up to that point indicated the recession was not that bad, obviously I was wrong at least in the sense that while it may not have been that bad…it did get considerably worse.

    Now, what you are doing here is creating a set of auxiliary hypotheses to explain away why your predictions have been consistently wrong.

    Another lie. I’m pointing out that unemployment insurance can increase unemployment duration and point to the studies that support this, and one of the few that don’t. I don’t, anywhere, claim that this is the sole cause for long unemployment spells and actually provide other factors as well.

    And as a narrow matter, of course, you are right that it is plausible that the extension of benefits worsens unemployment. But there is a structural issue that, I would argue, you seem determined to ignore.

    And yet another lie. You see this part of my post,

    Still the conclusion that many might simply be unemployable for sometime is a very valid concern. Right now we have an over supply in housing. During the housing bubble we clearly allocated too many resources towards building housing and some of those resources are people who worked in that industry and likely aquired skills for that industry and now simply wont be needed in that industry for a considerable amount of time. For economists, this is what we’d call a “unit root” problem, or in laymans term for the housing construction business we are likely looking at an “L-shaped” recession.

    That is a structural component and I think it is also part of the problem and one that will not go away simply by reducing the length of time by shortening unemployment insurance duration. I think a case might be made for something similar in finance as well. Lots of people aquired highly specialized knowledge and they might never go back to work in that field and that human capital may lie fallow for some time which would not be good for economic growth.

  5. Brett says:

    Lots of people aquired highly specialized knowledge and they might never go back to work in that field and that human capital may lie fallow for some time which would not be good for economic growth.

    That sounds like an argument for unemployment insurance, even if it does have the effect of increasing the time that workers remain unemployed (i.e., unemployed, but searching for work). * It gives workers a margin of time in which to look for positions that make better use of their skills, instead of taking a lower-paying and lower-skilled position out of desperation, and increases their bargaining power with a potential employer.

    * I know you were making the argument that these people might have skills that have no value anymore (I question that, particularly for the finance sector people), but it was also a good segue into my point.

  6. Brett says:

    One other thing –

    If we cut unemployment benefits, and many of the recipients were to them find jobs, odds are that a good number of them are going to end up in the ranks of the Working Poor. That would just be exchanging one type of welfare for a different kind – UI for food stamps.

  7. Trumwill says:

    There have been a couple of occasions that I took after unemployment ran out with companies and positions that I knew would hire me and was dodging while collecting unemployment. I eventually took the jobs and… left within four months each time. Not because I got a better job offer but because I knew that I had to find something else out there. The result was that these two employers expended resources training and preparing me for a job where they would (predictably) never recoup their investment in me.

    I think it’s a no-brainer that increasing duration unemployment insurance lengthens terms of unemployment. I think that there are a couple of mitigating factors here.

    First, this isn’t entirely a bad thing. Some people could go back to work at jobs they are overqualified or unsuitable for simply to have a job. Then being employed could then not have the time and energy to continue looking. Or if they could be on unemployment a little longer, they could find something more up their alley. This is not only good for them, but for their would-be employer that needs someone with that skillset who might be unavailable if working for Target.

    The rub on this is the question about what happens to people whose skillsets are going to be in demand any time soon. That’s why unemployment insurance shouldn’t be permanent. But I think some flexibility here is a good thing.

    The second thing is, of course, the economy as a whole. There simply aren’t enough jobs right now from which people can make a self-supporting living. It’s not about whether they can find someone with their precise skillset or not or even in their field or not. So you have one group that could find something and another group that can’t find anything. You can’t prod the latter without doing great harm to the former. Cutting people off can cost them their house and their car even if they retain marketable skills and have done everything right.

  8. Steve Verdon says:

    Bernard,

    Are we in a Recession? Probably

    Brett,

    That sounds like an argument for unemployment insurance, even if it does have the effect of increasing the time that workers remain unemployed (i.e., unemployed, but searching for work).

    I’m not making an argument here in favor or against unemployment insurance, just pointing out the research. Contrary to Bernard, who apparently sees everything through his ideological biases, this psot was not intended to be ideological, but more along the lines of informative of some of the research in this area.

    It gives workers a margin of time in which to look for positions that make better use of their skills, instead of taking a lower-paying and lower-skilled position out of desperation, and increases their bargaining power with a potential employer.

    That was kind of the point of the last article. Some of the literature does try to look at follow job duration and looks at unemployment insurance as an explanatory variable…but this is a blog post, not a lit review for Journal of Economic Perspectives. Although if you are interested some of the links will take you to a working papers archive that you can search.

  9. Steve: Respectfully, it took you forever to acknowledge that there was a significant weakening, and then forever to acknowledge it was a particularly deep recession. There must be a dozen posts where you vigorously debated the notion that this was the worst recession since the 1930s, when it was perfectly obvious to me (and many others of course) that this was the case.

    And for the past year, you’ve been consistently trying to explain away your lack of foresight on the issue by raising a series of contingent issues to explain various elements of the depth of the recession. I am sorry, but I can’t be the only one who reads your posts and sees a subtext that says, “the reason the recession is so deep is because of the actions of the Obama administration.”

    –BF

  10. Joe says:

    I’m starting to wonder if perhaps taking the money that would be used to pay out longer unemployment terms might be better used in trying to build up the economy to create new jobs in the first place.

  11. Marty says:

    From the San Francisco Fed’s Valletta and Kuang (h/t RTE/Derby):

    ” Although economists have shown that extended availability of UI benefits will increase unemployment duration, the effect in the latest downturn appears quite small compared with other determinants of the unemployment rate. Our analyses suggest that extended UI benefits account for about 0.4 percentage point of the nearly 6 percentage point increase in the national unemployment rate over the past few years. It is not surprising that the disincentive effects of UI would loom small in the midst of the most severe labor market downturn since the Great Depression.”

    While these cited studies may be valid under normal circumstances (which is why UI benefits are typically capped at 26 weeks), THIS AIN’T NORMAL CIRCUMSTANCES!

    I was laid off last October from a $120K/year IT job, which got off-shored. Every job I apply for has 30-40 applicants minimum. Employers can select the perfect match – someone with both the specific industry & tech background, usually at close to entry-level pay scale as well.

    I realize that I’ll take a haircut to get employed, but if you think that $500/wk UI is preventing me from finding employment, you’re smoking it. It’s the toughest freakin’ market since I graduated in ’82 and for quite a few years before that.

  12. Gerry W. says:

    Bottom line: You cannot create jobs if you are sending jobs overseas.

    An analogy: You cannot fill a bucket with water with a hole in it.

  13. Gerry W. says:

    I do agree with the article. But until we solve the globalization issue and the 2 billion people who are willing to work for a dollar an hour, we will not solve our unemployment situation and we cannot tackle deficits and debt.

    And the difference is that I view globalization as an issue to fix as the it ruins middle class jobs and/or lowers the pay of the middle class, and the elite embraces globalization and/or free trade as creating jobs and prosperity.

  14. Gerry,

    I think the elite have the better of this argument. If you’re suggesting that manufacturing employment will return to the levels of the 1960s, you’re dreaming. Technology and capital have improved productivity so much that we manufacture more than we ever have with far fewer people.

    Very much the same thing happened in farming on a much larger scale. In the 1850s, more than 50% of the labor force (much higher, but I can’t remember the exact value) was employed in agriculture and today it’s less than 3% of the of the labor force. Not only that but much less land is being used and we’re producing much more food than ever.

    Technological improvements do that and we’re better off as a society (more prosperous, more trade, etc.). The same applies in manufacturing and other industries. It’ll keep happening regardless of how you feel about globalization, and we’ll be better off as a result of that.

    It’ll just be painful getting there.

  15. Gerry,

    I forgot the main point from above. Technological improvement and free trade act the same way on the economy: they cost jobs in the short run, produce more goods (making us more prosperous) and change the economy in the long run to everyone’s benefit.

  16. Gerry,

    Another point: if there are two billion people willing to work for a dollar an hour and it’s a mortal threat to our economy, how do you explain 5% unemployment as recently as three years ago? For that matter, why is unemployment in the 10% range now rather than the 50% or 75% range? After all, we’re a country of 300 million; couldn’t these dollar an hour workers take all of our jobs? I think your worries about globalization are overwrought. The transition will be difficult but we’ll be better off in the long run.

  17. jack says:

    The same applies in manufacturing and other industries. It’ll keep happening regardless of how you feel about globalization, and we’ll be better off as a result of that.

  18. Steve Verdon says:

    Steve: Respectfully, it took you forever to acknowledge that there was a significant weakening, and then forever to acknowledge it was a particularly deep recession

    Bernard, did you read the link? That post was 1 month prior to the NBER’s release that we were in a recession. I had been noting the weakness in the payroll numbers for some time. I was routinely accused of talking down the economy by the more conservative commenters here.

    As for the severity of the recession, the one post that where we had considerable back and forth I noted that the at that time the data indicated a recession that wasn’t that bad for being 12 months into a recession, which by historical standards is pretty far into a recession. I also indicated twice in the text of the post that more data could change that view, I again noted in a comment that new data could cause me to change my mind and acknowledge that yes the accelerating trend was worrisome.

    I am sorry, but I can’t be the only one who reads your posts and sees a subtext that says, “the reason the recession is so deep is because of the actions of the Obama administration.”

    Proof or STFU.

    Here, lets see….Hmmm, nope no love for you there Bernard,

    This makes this recession as bad as 1957 and not quite as bad as 1948 in terms of unemployment.

    Those were bad recessions.

    Oh noes! Oh, wait, I’m pretty pessimistic there.

    Here is my thinking Bernard you are so blinded by your own partisan biases that you don’t realize I think McCain would have done no better than Obama and probably would have done many things pretty much the same. My disdain for Obama isn’t necessarily specific to him, but to our political class who I see as being ineffectual venal cowards who talk about doing the right thing, but in the end do the easy thing that will also help ensure their re-election. Obama just happens to be the guy in charge, so….he gets the brunt of it.

    Do I think Obama has done things that may have prolonged the recession probably….however, I think McCain would have done very similar things. The idea that one of these jokers is better than the other is something I consider naive and foolish.

    And you’ll have to pardon me if I don’t believe you about reading my posts. You apparently couldn’t bothered to read the post I linked above that disproves your claim that I was parroting McCain that the fundamentals were strong.

  19. Trumwill says:

    Technological improvement and free trade act the same way on the economy: they cost jobs in the short run, produce more goods (making us more prosperous) and change the economy in the long run to everyone’s benefit.

    Not entirely disagreeing here, but the benefits can be pretty unevenly distributed. You can theoretically reach a point where there those that don’t have the ability to do brain work have to subsist as store clerks and the like. As fewer and fewer jobs are available to certain segments of the economy (the less intellectually adept) more and more of the wages can be pushed well below the point at which it is possible to make a living. This is a great arrangement for those that have jobs and can get stuff super-cheaply, but it can make life really difficult for a lot of people that were already on shaky ground.

    Ultimately, I don’t disagree with you. I think that globalization and automatization are here to stay and they will contribute more and more to our collective access to goods and our GDP, but whether it makes “everyone” or even “most people” better off is contingent on the profit margins reaching below the upper-echelon of our economy. Some of this money will make it down by those having money being willing to pay people to do things for them, but it could end up taking a lot more than that.

    We can see a strong stock market and a great GDP and still have more people than not left out of the money rain.

  20. Trumwill says:

    That being said, I think that a lot of the talk of globalization is pretty over-wrought, particularly in the white-collar sector. Having worked for three different companies that have tried outsourcing to India, China, and Russia respectively, it’s more than a little bit more complicated than the simple fact that they’re cheaper than we are. It takes a lot more of them to do what a few educated people in this country can do. Time and work is lost due to communication/language issues, time zone differentials, and so on. They don’t have to be cheaper, they have to be a lot cheaper and as more people try to outsource to these countries, they will be able to command more and more for their services and their economic inside track will evaporate. Lastly as their economies get more wealthy they will be able to start their own companies and more and more of their resources will be devoted to local companies (where communication/language/timezone/cultural issues don’t exist) which will stretch their resources even thinner. I seriously doubt it’s India’s or China’s intention to be our errand boys forever. Nor are they going to be willing to work for pennies on the dollar any longer than they have to. Right now they’re cheap because they have no better options. That will not indefinitely be true.

  21. Raoul says:

    The 99ers are proof that UI does not create insurance. The problem with modern conservative economic thinking- is that everything revolves around the S and D line and does not allow for complexities that overwhelm the charts.

  22. Raoul says:

    Edit:

    The 99ers are proof that UI does not create unemployment.

  23. Gerry W. says:

    Robert,

    I live in a small town in Ohio and it has lost three manufacturing plants and more. I would say we have over 30% unemployment. And there are many more small towns like mine throughout the Midwest.

    http://www.toledoblade.com/assets/pdf/TO51488727.PDF

    http://www.nysun.com/comments/60366

    Globalization may look good for productivity, but it is ruining small towns (as they cannot diversify) and it is ruining the middle class as we know it. The state of Ohio has voted for casinos. We have had cash for cliunkers and bailouts. And now it is extension of unemployment benefits. This is not progress. We are doing all the wrong things. China is building whole cities and we are losing jobs, borrowing, and down sizing. If you are going to get rid of jobs, then you need to replace them. It is that simple. Two billion people will not have all the jobs, however, the sheer size of numbers dictates that we will have pressure on jobs and wages.

    The short run of this upheaval will last some 10 to 20 years. There are 50 year olds that will not retrain and they are lost. So we lost a generation of workers. It also means less tax revenue for cities, states, federal government, and social security. And this is the situation we are in now.

    Yes, we may be better off in the future. Just like our ancestors who came over from Europe. We are better off, but we had to kill a lot of Indians.

    We never prepared for globalization. There are no “new” jobs to go to, and there is no guarantee that any widget will be built in America. The I phone and I pad is built in China. Now, I am not blaming China, but there is a big gap in wages. And we know that people are getting away with slave labor.

    The 5% unemployment rate under Bush was a house of cards. Those tax cuts was for the here and now and did nothing for our future. As we watched the problems piled up years ago, more and more of our jobs went overseas and China was growing at 8%.

    And I am saying, without a plan to replace those lost jobs, you cannot solve one problem in our country. You cannot solve the unemployment problem and you cannot solve the deficits and debt. We used up our stimulus of tax cuts until they are rendered useless. We have used up the low interest rates till the fed can no longer lower interest rates to stimulate. We gave up our jobs and we sent our money to Iraq. That is no way to run a country. There is a disconnect on what Wall Street and what Washington sees. I see it with my own eyes. And the rate of jobs going overseas is at a faster pace.

    Again, the tried and true reason, is the same as what a CEO does with his country. You invest in your country, in your people, and in the future. All we saw under Bush was a failed ideology of tax cuts and stay the course and it ran this country into the ground,

    http://theeconomiccollapseblog.com/archives/shipping-our-economy-our-jobs-and-our-prosperity-to-china

  24. Trumwill says:

    The 99ers are proof that UI does not create unemployment.

    No, they don’t. They are proof that unemployment is not created solely by unemplyment insurance.

    -{Before anybody accuses me of being a Republican/libertarian/heartless shill, see my above comment in defense of further extending benefits despite the fact that it (nominally) contributes to unemployment numbers.}-

  25. Brummagem Joe says:

    Sorry Steve once you started quoting comments from a report on Slovenia you lost me. Intuitively one has to believe the availability of unemployment benefits is probably going to result in a disincentive to look for work amongst some, but that hardly seems a sound reason to end them. Also any programs are going to be subject to abuse and this is not a phenomenon that is restricted to the unemployed. The problem with all this theorising is that it largely irrelevant in the face of the fact that we have roughly five times the number of people looking for work as there are openings. Until the number of openings expands, the continuance of unemployment insurance is effectively unavoidable whatever problems there are on the margins. Politically Republicans may think trying to block these is a winner but I doubt it since the odds are most people have either experienced unemployment personally or know people who have. The challenge is to boost economic activity which makes Republican blocking of a lending bill for small businesses all the more perplexing. The other day you were claiming that small businesses were having problems obtaining loans (I don’t totally agree with you) but if you’re right the Republican action seems somewhat at odds with their rhetoric wouldn’t you say?

  26. john personna says:

    I think the purpose of Steve’s long post, Slovenia included, was to muddy the waters. He doesn’t really want to stop extension of benefits. He just doesn’t want it to look like a Democratic win or a Republican loss. He doesn’t want Republicans to look as heartless as they really are ;-0

    So I wouldn’t spin it the way he does, despite agreeing on the big issue: We should be loathe to extend duration of benefits, and only do it when we must, of moral necessity.

  27. just me says:

    Do I think Obama has done things that may have prolonged the recession probably….however, I think McCain would have done very similar things. The idea that one of these jokers is better than the other is something I consider naive and foolish.

    I think this is very true. I think McCain would have put together a slightly different looking stimulus, but he would have done a stimulus and whether or not it would have done better or worse than the one we have is debatable, but McCain would have been spending money.

    As for the global market-that horse has left the barn. Companies are first and foremost a business that is out to make a profit and if going overseas means a higher profit margin they are going to go overseas. I suspect for a good while to come that there are just certain types of jobs that aren’t going to come back, and rather than whining about those jobs going overseas, we should start considering what should replace those losses. It may mean retraining some of the workers who lost jobs in fields that are currently hiring or at least look promising, and it may mean finding ways to give businesses an incentive to build or start up in those former factories and mills. I don’t think there is an easy answer, but complaining about a company taking its manufacturing to a different country probably isn’t going to be an answer either, nor is expecting them to come back (other than a few fields-one thing I notice is a lot of the companies that used to have people from India answering phones are going back to having americans answer those phones-I think that little idea to save money resulted in consumer complaints-it isn’t universal, but I find I am getting fewer customer service representatives who are from other countries).

    But globalization is here and it is staying, it may change some as some countries become more advanced and other countries become the new India and China, but we aren’t going back to the way things were when an 18 year old high school graduate could get a $15 an hour job at a unionized factory where he would work until retirement and then take home a hefty pension and other benefits. Some may not like that answer, but that is the direction we are heading.

  28. john personna says:

    I kind of worry that if “globalization is here and it is staying” then we just have to accept global-level poor, in our own nation.

    I watched the Nat Geo show on the real “slumdog” slum last night. There are lots of stats there on very poor people living without welfare. They do it because they have to. They can’t afford to sit and watch TV all day.

    The weird dynamic, which I don’t endorse, but don’t really know how to solve, is this: We have this huge amount of human capital sitting and watching TV, because our economy cannot provide the middle-class jobs they desire. Because they can’t find a US job, they do less work than India’s poor.

    With free trade and cheap transportation, why should jobs go to American couch-surfers first?

    Don’t kid yourself that it’s because they are harder workers.

  29. Gerry W. says:

    I am trying to find a middle ground. Some people complain about unions, but they did given us a middle class, and we see what is happening without unions in China and other countries. As for our nation, it has been a nation on the cheap. Cheap labor, cheap dollar, cheap interest rates, cheap oil, low taxes. And just how long will this go on?

    I can accept globalization, it is just those who praise globalization have no answers. We never invested in our country, in our people, and in the future as a nation. Of course, the republicans say we don’t have to, as we have found out how far laissez-faire will go. We used to do great things, and now it is just ideological rhetoric.

    It is Carlos Gutierrez, former Bush Commerce Secretary saying that DYNAMICS have not changed. But it has. It is 2 billion people who want jobs and it is globalization that will affect the middle class.

    It is Veronique de Rugy, economist from George Mason Univ., (30 minutes into the video) who says after a guy calls in about jobs, and she praises that our jobs are going overseas, and that Wal Mart is creating twice as many jobs.

    And you hear this talk all the time from economists and pundits. And all I see is the destruction of the middle class. But I guess, things are so great that we can continue on with cash for clunkers, extension of unemployment benefits, and casinos for every state.

  30. just me says:

    We never invested in our country, in our people, and in the future as a nation. Of course, the republicans say we don’t have to, as we have found out how far laissez-faire will go.

    Elaborate what you mean by this-what and how do you see this investment happening and how did it not happen, who is the investor and how?

  31. Gerry W. says:

    Thanks for asking.

    1. Fix the antitrust laws that Reagan relaxed. Monopolies and consolidations destroyed jobs.

    http://growth.newamerica.net/publications/articles/2010/who_broke_america_s_jobs_machine_27941

    2. Invest in your country: That is energy independence for security and jobs. Also a new air traffic control system that will save 12% on fuel. The savings to the airlines can go to build new aircraft. A high speed internet system. Perhaps high speed rail.

    3. Invest in your people: That is mandatory vocational training. We live in a globalized world and you can no longer rely on factories. We have to be an educated society.
    http://www.hudson.org/index.cfm?fuseaction=publication_details&id=5656

    4. Invest in the future: Federal research grants to be given to universities and business to bring out new technologies. Today there are no new jobs to go to for those unemployed. You need new areas of growth. No playing games with embryonic stem cell research.

    http://www.newsweek.com/id/222836/output/prin

    5. Consider an “American job elimination tax” on companies that move out of the country. These companies do not pay middle class wages, healthcare, pensions, social security, or city and state taxes.

    6. Get away from failed ideology. We saw it for 8 years. Tax cuts do not solve problems. Does not prevent recessions. And does not create prosperity. You still have to solve problems. Ideology does not solve problems.

    7. Supporting small business sounds nice and it is heard in Washington, but it does not work in my community as the big business left. That means you cannot have small business as people lost their jobs. Besides, small business will never pay what big business paid in wages.

    8. We are losing the middle class. We cannot compete with 2 billion cheap laborers in the world that want our jobs. There are not enough jobs to go around. Competition is good, but it can be harmful also. All we are doing in this country is build the same business environment so that we can knock the other guy out. A person loses his job and has no place to go to. And the reason is that we did not invest in our country, in our people, and in the future.

    9. Have commissions to cut government spending. It seems to be the only approach to doing this. Obviously, one side or the other will complain, but something has to be done now.

    10. Government appointed jobs and organizations need to be slimmed down. Every 50 to 60 years we need to go through this. There are too many secretaries, deputy-secretaries, under-secretaries, and under-under-secretaries. Information gets loss through the process and government becomes ineffective. The last time this was done was with the Hoover Commission in the late 40’s.

    11. Pour money into new drugs and preliminary medical science. Drugs are becoming less resistant to diseases. And potential super bugs are coming.

  32. Drew says:

    It would appear that Bernard spent his day in a wrestling match with a fifth of Vodka.

  33. EJ says:

    Not sure if someone has already mentioned this or not but unemployment benifits have a different effect in a normal labor market then they do in a period of high unemployment. In a normal market, a person declining employment due to being on UI means that there are now more unemployed resources in the eocnomy and output declines. In a recession with labor market slack, the effect is primarily distributional. Person A declines employement, but person B fills that job. As long as unemployed greatly outmumber open jobs it should have a huge effect on output.

    Now it may very well be increasing the median rate of unemployment. If you look at the breakdowns by period, the amount of people unemployed less that 5 weeks has now come down to normal. Many people who get laid off are quick to get rehired. A lot of this is the structual unemployment ocmponent you mentioned ie construction workers not being skilled according to current demand, but this is also likely reflective of the districbution effect i mentioned.

    So in short, is UI increaisng unemployment currently? Probably to some extent, yes. But its negative effects would be far less now due tot he labor market slack than in normal conditions when most of these research papers were conducted.

  34. Brummagem Joe says:

    john personna says:
    Thursday, July 22, 2010 at 08:44
    “I think the purpose of Steve’s long post, Slovenia included, was to muddy the waters.”

    He does have something of a tendency to do this I’ve observed. When I said the other day that Bernanke was in a liquidity trap he denied it on the basis that demand for T bills was strong. I then gave the classic definition of a liquidity trap which precisely fits the dilemma facing the Fed and asked him if my definition was incorrect, but received no response.

  35. john personna says:

    Re. that old discussion and our very close but nonetheless contested positions:

    Former Federal Reserve board member Lawrence Lindsey said on Thursday it will be “obvious” by the end of this year that the U.S. economy has entered a “deflationary trap.”

    http://timiacono.com/index.php/2010/07/22/lindsey-u-s-entering-deflation-trap/

  36. Brummagem Joe says:

    john personna says:
    Thursday, July 22, 2010 at 13:27

    I’m not quite sure Lindsey means by a delationary trap, does he mean real deflation will have appeared during H2 or is he using it as a synonym for a liquidity trap. It was interesting during Bernanke’s testimony that he was hinting the fed had some unusual cards to play should they deem it necessary to roll them out although he was keeping them close to his vest. He also actually somewhat pooh poohed Lindsey’s forecast.

  37. Brummagem Joe says:

    “He also actually somewhat pooh poohed Lindsey’s forecast.”

    Assuming of course that Lindsey meant we were going to see real inflation in H2