I wrote two days ago about subsidized unemployment, followed later in the day by this interview.
This controversy raises a fundamental economic issue.
I explained in the interview that employers only hire people when they expect a new worker will generate at least enough revenue to cover the cost of employment.
There’s a similar calculation on the part of individuals, as shown by this satirical cartoon strip.
People decide to take jobs when they expect the additional after-tax income they earn will compensate them for the loss of leisure and/or the unpleasantness of working.
Which is why many people are now choosing not to work since the government has increased the subsidies for idleness (a bad policy that began under Trump).
The Wall Street Journal editorialized about this issue a couple of days ago.
White House economists say there’s no “measurable” evidence that the $300 federal unemployment bonus is discouraging unemployed people from seeking work. They were rebutted by Tuesday’s Bureau of Labor Statistics’ Jolts survey, which showed a record 8.1 million job openings in March.
…But these jobs often pay less than what most workers could make on unemployment. That explains why the number of job openings in many industries increased more than the number of new hires in March. …The number of workers who quit their jobs also grew by 125,000. …some quitters may be leaving their jobs because they figure they can make more unemployed for the next six months after Democrats extended the bonus into September.
Dan Henninger also opined on the issue for the WSJ. Here’s some of what he wrote.
President Biden said, “People will come back to work if they’re paid a decent wage.” But what if he’s wrong? What if his $300 unemployment insurance bonus on top of the checks sent directly to millions of people (which began during the Trump presidency) turns out to be a big, long-term mistake?
…Mr. Biden and the left expect these outlays effectively to raise the minimum wage by forcing employers to compete with Uncle Sam’s money. …Ideas have consequences. By making unemployment insurance competitive with market wage rates in a pandemic, the Biden Democrats may have done long-term damage to the American work ethic. …The welfare reforms of the 1990s were based on the realization that transfer payments undermined the work ethic. The Biden-Sanders Democrats are dropping that work requirement for recipients of cash payments.
Amen.
I made similar arguments about the erosion of the work ethic last year when discussing this issue.
And this concern applies to other forms of redistribution. Including, most notably, the foolish idea of big per-child handouts.
P.S. The WSJ editorial cited above mentioned the Labor Department’s JOLT data. Those numbers are also useful if you want proof that federal bureaucrats are overpaid, and you’ll also see that the same thing is true for state and local government employees.
[…] And don’t forget about the very recent evidence that turbo-charged unemployment benefits encouraged more joblessness. […]
[…] And don’t forget about the very recent evidence that turbo-charged unemployment benefits encouraged more joblessness. […]
[…] And don’t forget about the very recent evidence that turbo-charged unemployment benefits encouraged more joblessness. […]
[…] Subsidized Unemployment and the Work Ethic […]
[…] what it’s worth, I’m more upset about the subsidized unemployment than the differences in lockdown policies, particularly because the former is more indicative of […]
You’re perhaps missing something.
If people simply won’t take unpleasant jobs because the pay is too low, who is to say that not having unemployment benefit will fix anything? People might just as easily resort to professional begging and thieving if it works out better for them than working a shitty low paid job.
[…] Unemployment benefits producing more unemployment. […]
[…] now that there are bonus payments for staying unemployed. Which makes it hard to businesses to find […]
[…] now that there are bonus payments for staying unemployed. Which makes it hard to businesses to find […]
[…] what it’s worth, I’m more upset about the subsidized unemployment than the differences in lockdown policies, particularly because the former is more indicative of […]
[…] what it’s worth, I’m more upset about the subsidized unemployment than the differences in lockdown policies, particularly because the former is more indicative of […]
[…] what it’s worth, I’m more upset about the subsidized unemployment than the differences in lockdown policies, particularly because the former is more indicative of […]
[…] Subsidized Unemployment and the Work Ethic […]
[…] Subsidized Unemployment and the Work Ethic […]
Spot on. This excess goes all the way back to the War on Poverty. Massive increases in transfer payments caused the proportion of prime working age adults who chose not to work to double.
The 1990’s Welfare Reform helped a bit with adding a work requirement to TANF when it replaced AFDC. The participants in that program actually did show a propensity to become more engaged in the labor force, but other programs such as food stamps stepped in with even greater subsidies such that overall more people with a low reservation wage simply stopped working.
[…] https://danieljmitchell.wordpress.com/2021/05/13/subsidized-unemployment-and-the-work-ethic/ […]
Common sense. It’s not rocket science. It’s hard to believe that our elected officials are that damn dumb.