Acting like unemployment is voluntary leads to serious policy errors. At a time when there are four applicants for every job opening, increased motivation among job seekers is unlikely to significantly reduce the unemployment rate. So, when the Republican candidates in last night’s debate called for reductions in the duration of unemployment benefits to push people back into work, they rightly came in for criticism.
Unfortunately, liberal defenders of unemployment benefits swing the pendulum too far in the other direction. “You’re blaming the unemployed,” they insist. The conceit too often is that unemployed people want to work, and so it’s a phantom concern that benefits create a disincentive to work. This view—that unemployment is involuntary—also leads to serious policy errors.
The truth is that unemployment, like many conditions, arises from a variety of factors both within and outside an individual’s control. It’s harder to find a job than it used to be, but a large majority of people who want to be employed are employed. In a slack job market, people who used to have enough human capital to find work may now fall short. But by gaining human capital, they might become more employable. It’s simplistic to paint the unemployed as simply victims of circumstance.
I therefore am puzzled by, for example, Jonathan Cohn’s and Tim Noah’s outrage at the idea of requiring Unemployment Insurance beneficiaries without high school diplomas to pursue GEDs. There may be problems with this idea, but surely the problem is not that it would “stigmatize and humiliate people whose sole offense to society is that they once had a job and then lost it.” Why is it humiliating to insist that people who cannot find work in the current economy take steps to improve their employability?
Cohn rightly points out some practical problems with the proposal. For example, a GED might not be of much value for workers already near retirement age, and many GED programs have long waiting lists. But that’s an argument for better tailoring the requirements. Maybe they should only apply to people under 40. Maybe certain kinds of job training should be allowed in lieu of a GED. Certainly the federal government should pay for the mandated training (fiscal stimulus!) Such a compromise would entail Republicans admitting that helping the unemployed is a good use of tax dollars, and Democrats acknowledging that the unemployed share responsibility to make themselves marketable.
The situation where we are not going to have to worry much about disincentives to work is going to draw to a close soon. Right now, extended unemployment benefits are a good idea, as I’ve written before. But at the end of 2012, if current positive jobs trends continue, it will be time to think about pulling back. At the same time, we will have to face a new challenge: reintegrating the long-term unemployed into a job market that has the capacity to absorb them, but who may now have significant skills gaps.
It is important that these people not get stuck in poverty traps. The near-poor face some of the highest marginal tax rates in the United States, because advancement in the workplace causes them to lose means-tested benefits—not just UI but also food stamps, Medicaid and housing vouchers. See for example this story from Jeff Liebman about a woman who moved from a $25,000 per year job to $35,000 and lost several hundred dollars per month in take-home pay.
This isn’t an easy problem to fix. Making means-tested programs less generous would significantly harm their beneficiaries; extending the benefit phaseout ranges so that effective tax rates are lower would make the programs much more expensive. This phenomenon is a real reason to worry that the unemployed and underemployed, left unprodded, will not work hard enough to gain human capital and seek more and better employment—what’s the point, if your marginal tax rate is nearly 100 percent?
“Blaming the unemployed” also plays an important role in combating the incentive effects created by means-tested benefits. A social stigma against unemployment encourages the unemployed to re-enter the workforce even if it does not significantly raise their incomes relative to collecting benefits—leading to greater overall economic output and, in the long term, improving the well-being of the unemployed.
Recessions and their aftermaths are special, and we should worry less than usual about disincentives to work. But we also shouldn’t take our eye off the long game—convincing ourselves that unemployment is involuntary will lead to policy errors in the long run even if it helps us make the right decisions today.
