Thursday, May 28, 2020

Unemployment insurance weaning

As the economy recovers, public policy faces an inevitable dilemma. How do we wean the economy from support?

This comes to the head with federal support for unemployment insurance -- $600 per week, set to expire at the end of July. The unemployment rate will still be high in July. Congress seems to have largely given up, in public, of thinking clearly about the economic purpose of policies, and now the discussion is entirely in terms of who deserves additional "help," often in moral terms -- "people" vs "corporations," various regions, sizes of business, "communities," and so on.  How can we reduce "help" while unemployment surely ravages the land?

On the other hand, for many workers right now, unemployment benefits pay more than working. Unemployment pays more than going back to their old job as it opens, and it pays more than taking one of the many new jobs that are available now -- Amazon, Wal-Mart are hiring, and there is surely going to be demand for contact tracers, temperature takers, building disinfecters, social distance monitors, and so on.

So, the age old question of economic policy emerges. How do we balance help -- insurance -- with incentives -- the need to get people back to work ASAP when jobs are available?

Lost in the policy discussion, let us not forget the hard fact of life. Work is not fun. People in the real world (not economics bloggers!) don't work because it's fulfilling or enjoyable. They work because they need the money and the health insurance. Work is a necessary evil for our economy to produce the things we all need and want to consume. People don't take lower paying jobs willingly, no matter how much society needs you, right now, to stop binging Netflix and go spend 8 hours wiping down carts at the local Safeway.

With that, here are some clever ideas.

1) Pay anyway.  If you take a job, you can keep the unemployment benefit, at least for a period of time. Or, better, you can get a nice cash check, $1200 (two weeks of federal, another stimulus check) or even $2400 (a month). In return, you can't get unemployment again for, say, 4 or 6 months.

2) Community service. If you stay on unemployment past July 31, you have to do (say) 20 hours a week of community service. What will they do? Well, I've been reading Stephanie Kelton's book (review coming), and she has a proposal for a federal jobs program. Apparently, she thinks there was an immense amount of good work that governments and communities needed done before the pandemic, WPA style. There is much more now -- trace contacts, disinfect playgrounds, take temperatures in public buildings, you name it.  Workers could be rented out to monitor temperatures in front of struggling businesses. So, put Kelton and company -- Bernie Sanders, AOC --  in charge of the community service part.

I offer this latter suggestion only half-jokingly. Obviously there is a political divide on what to do about unemployment. If the government is already paying people, there isn't much damage to letting the left try out its jobs program. If like me you're a little cynical about government jobs programs, well, we'll find out, and we'll save money to boot as the prospect of working for local government might just scare a lot of people back to work. And I love an offer they can't refuse. Imagine the Trump Administration calling the left's bluff on this one -- how can they say no?

(A response to a commenter: It doesn't matter for this purpose if there is any value to the work. I'm looking for a disincentive to stay on unemployment when there are jobs available, that will be politically palatable.)

3) Jobs board. Sweden has (had?) an interesting system that combined a carrot with a stick. Generous unemployment, but a national job registry and you had to take a job offer. I doubt the bureaucratic competence of the US, especially in the month or so we have to get it going, but something similar could happen. To get Federal unemployment top-up after July 31, you have to fill out a one page form with work experience that reads like a job application. Employers can search and offer you a job. If you get the job offer, you take it or  lose unemployment.

4) Just who? Obviously it's time to restrict just a little bit who gets generous unemployment. If your old company is still in business and wants to hire you back, the gig is up. If it's hiring at all, even lesser job categories, you have to apply. If there are more than X job vacancies in your county, the extra unemployment insurance dries up.

A currently popular idea is temporarily cutting or eliminating payroll taxes. This is a nice inducement to work, but even I am a little behavioralist and I wonder just how many people who earn $20 an hour are really clear on how much extra they will get by returning to their old jobs if there is a payroll tax reduction. My $2400 check seems like a more salient incentive.


  1. Your #1, pay anyway, is clearly the best. Must not be tied to the state of unemployment.

    The public service tricks I find more and more amusing. It's just a bunch of people in this generation who will benefit from free labor. Next generation has to induce third generation to do the same, just to stay in the same place. If public things need doing, pay for it out of normal budgets.

    Only public service that worked was teenage boys and girls planting trees in deforested Spain under Franco. Their reward was that they could do stuff with each other, being finally rid of that pesky parental chaperoning! :-)

  2. #2 Government jobs that by their nature are likely to be temporary like contract tracers is one thing, but plenty of people like working for government, so what happens when those people become another source of political patronage for BS/AOC-types who promise to turn them into permanent government jobs (and exacerbate the fiscal problems that so many already states have, at least if you don't believe in the magic wand of MMT)?

  3. Interesting thoughts.

    I'll add some of my own:

    (1) Regarding point 2 from Dr. Cochrane: wasn't part of the structure of the WPA/CCC that people could be fired relatively easily? In other words, it was not so much a "guaranteed job" as an "available job subject to performance standards". I understand that this distinction is very likely part of Dr. Cochrane's point: let's see Bernie Sanders and AOC get on board with a program that actually incentivizes and *requires* work and isn't just a boondoggle.

    (2) Isn't one reasonable answer to this conundrum simply to reduce the extra $600 per week of federal UI by something like $150 every week or two post July 31? In other words, perhaps it's $450 as of August 7, $300 as of August 14, $150 as of August 31, and $0 as of September 15. This idea is admittedly imperfect. I can see the case for starting reductions before July 31, but I can see an ethical argument for sticking with what was promised in the CARES Act, as well as a political reality that we are probably locked into this program until July 31.

    (3) For all that I am happy to agree that the U.S. administrative state is imperfect, we (at least in theory) normally condition unemployment benefits on looking for work and accepting a job (if offered). My understanding is that some of those requirements were waived in the CARES Act, and there's an obvious question whether staffing and systems can keep up with the level of unemployed today. All of that said, I'm left wondering if the Swedish idea is *that* much different than how many states already monitor unemployment.

    I'll also ask - will Sweden actually make someone from (for example) Stockholm move a couple hundred miles away to accept a job? If not, we've already established that an analogous U.S. system won't make someone move from Houston to Dallas, Austin, or San Antonio. That's just one example but, given geographic restrictions, I question whether a "national system" in the U.S. is useful in practice. Cities/counties are the most logical units.

  4. Howard Levitt of Levitt LLP, employment and labour lawyers, practises employment law in eight provinces. He is the author of six books including the "Law of Dismissal in Canada". He penned an article for the Financial Post, Toronto, discussing the emerging trend in disability insurance wherein insurers are delaying and/or denying benefits to insureds during this period of COVID-19 pandemic.

    He writes, in the article, two paragraphs which strike to the heart of Dr. Cochrane's thesis in the blog post discussing unemployment insurance benefits and measures to force furloughed employees back to work and/or force the unemployed to take any job on offer, no matter what, or lose insurance benefits.

    Levitt notes:
    "Employees fall victim to the common misconception that the “any occupation” definition in their policy includes any type of work, be it flipping burgers at a fast food chain or greeting customers at a big box store. It does not.

    "The job should be similar in status and reward. The employee must be suitable for the proposed new job in terms of her education, training and experience."

    Levitt's remarks are directed at private insurer-insured contracts (policies), whereas Dr. Cochrane is discussing government income support measures and interaction of those measures with private employment decisions. Arguably, however, the courts would rely on common law precedent and apply it to correct any arbitrary decision by government to remove benefits if the beneficiary refuses to take any employment offered her or lose access to those benefits, as Dr. Cochrane advocates should happen to her, regardless of the suitability of the employment on offer.

    Requiring an applicant for government benefits to fill out a form that is essentially a job application form in guise, as a means to get around this 'technicality' raises its own issues -- a job application résumé, or CV, is hardly sufficient for the purpose of determining whether a proferred job is suitable for the applicant, or the applicant suitable for the open job. The bias, inherent in government bureaucracy is that the "government is always right". Where the government is motivated to minimize its outlays, it errs on the side of not doing something which it may be entirely required to do, much like the private disability insurance companies are endeavoring to do during the current period of pandemic--deny claims, defer processing all claims, and stopping payments to existing beneficiaries in order to conserve cash and support profitability or minimize deficits.

    The current unemployment is involutary, determined as it is by government policy largely at the city, county and state government levels. Reluctance to return to work is driven in part by fear of contracting COVID-19, in part by the need to look after the well-being of family members (children and elderly relatives) where no other support exists, in part by pecuniary considerations, and in part by knowledge of the characteristics of the job and/or the employer.

    The response of the government should be directed to addressing the risks of infection and hospitalization and focused on prevention and, ultimately, implementation of an effective program of immunization, rather than to attempts to get the involuntarily unemployed off the welfare rolls with all possible dispatch as some are advocating in the financial press.

  5. Unemployed workers are forward looking and should recognize that benefits will not exceed the prevailing wage forever, even if they do now. For workers who are furloughed, the value of a few additional months of unemployment at a replacement rate in excess of 1 probably won't exceed the benefit of losing one's place at a former job to another worker. For workers who are not furloughed, I think the same applies: a surge of job openings as the economy re-opens may be a one-off, so the decision to accept an offer now will reflect not just a comparison of today's wage versus today's unemployment benefit, but also the implications of remaining unemployed after the low-hanging fruit has been picked. Of course, your suggestion 1) is good policy regardless of how forward-looking unemployed workers are.

  6. Let's please re-label #2 so that it reflects the true intention - Chain Gang. Yup, line 'em up on the side of the road with orange jumpsuits picking up trash or digging holes and filling then back in again so they can be publicly shamed into working. Nice.

  7. Government drives the cost of money down to near zero to benefit corporations and is now quibbling over the support provided workers whose jobs were foreclosed by government actions. The same government that created the student loan crisis, the hollowing out of our industrial base, the destruction of the nuclear family, and the collapse of incomes for the lower two quintiles of the working population is now worried that 600 dollars a week is too powerful a disincentive for work. This is absolutely hilarious and explains why socialism is becoming the vogue.
    Elites possessed of absolute economic security, multiple homes, every appurtenance of 21st Century luxury lifestyles distraught over the notion that 31200 a year will keep the serfs off the plantation seem oblivious to the ugly spectacle they present.
    Well, you can alway sget more Central Americans to fetch your quiche.

  8. This says you're supposed to decrease payments over time

  9. We need more jobs. #3 or something.

  10. Basic Macro has determined that consumption is nearly 70% of GDP. And, since all economies use GDP as a measure of economic well-being, it is no surprise that Fiscal and Monetary bazookas are being deployed to preserve the ability to both consume and produce.

    It's pretty obvious there can be no consumption without the funds to do so. Similarly, there can be no production unless there is L and K. As Dr. Cochrane mentioned, work typically sucks, but we do it so we can survive, and hopefully thrive. There's a feedback loop between consumption and production and people typically do both, unless they are disabled or dead.

    All obvious stuff, I know. But I wish to quote something from Michel Focault's "Madness and Civilization." In chapter two, he addresses what he calls "The Great Confinement," in which confinement locales, absent of any state regulation, could be formed to house vagrants and the mentally ill, or "mad." These houses would then put these souls to work, with no wages whatsoever. They were cared for, but only for the purpose of production. They had no interest in their well-being.

    And, here it is:

    "Confinement that massive phenomenon, the signs of which are found all across eigtheenth-century Europe, is a 'police' matter. Police, in the precise sense that the classical epoch gave to it - that is, the totality of measures which make work possible and necessary for all those who not live without it; the question Voltaire would soon formulate, Colbert's contemporaries had already asked:
    'Since you have established yourselves as a people, have you not yet discovered the secret of forcing all the rich to make all the poor work? Are you still ignorant of the first principles of the police?'

    Now, that may be very hard to swallow or accept. But, if we think about it, why do we have the police and military, hmm? One of their true functions to provide security so an economy can function without social frictions.

    I bring all of this up because Dr. Cochrane brought up options 2 and 3; and 2 was proposed half-jokingly. However, I am concerned that options 2 and 3 have a similar smell to what Voltaire had to say about enforcing productive activity.

    The incentive to work I believe has two dimensions to it: the ability to survive and the ability to thrive. The first has a self-interest component built in, but the second, the ability to thrive, appears to be a mirage.

    What will work look like for these folks on unemployment in the future, hmm?

    Some other options:

    1). Retrain the workforce into more productive activities
    2). Pay people more per hour. Yes, that shifts the supply curve out, and yes, it also is a component of cost-push inflation. However, without funds, consumption cannot happen and production cannot happen either. Their fates are intertwined. Do we really want to risk consumption tanking? Helicopter money, in whatever form, will help consumption from tanking, and prevent a deflationary crash.

    We have to ask ourselves what we really want and put people in place who know what they are doing. Maybe that is a fantasy, similar to the end of idealism that Plato laments about in "The Republic"


  11. One of the deeper problems has to do with how self-interest is promoted in the founding of our nation in the Declaration of Independence:

    “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. — That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, — That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness. Prudence, indeed, will dictate that Governments long established should not be changed for light and transient causes; and accordingly all experience hath shewn that mankind are more disposed to suffer, while evils are sufferable than to right themselves by abolishing the forms to which they are accustomed. But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security. — Such has been the patient sufferance of these Colonies; and such is now the necessity which constrains them to alter their former Systems of Government. The history of the present King of Great Britain is a history of repeated injuries and usurpations, all having in direct object the establishment of an absolute Tyranny over these States. To prove this, let Facts be submitted to a candid world.”

    So, there are some problems here. The promotion of self-interest is pushed onto the functioning and purpose of the government itself. And while there is a rough contingency plan in place to remove governments that fail to meet this end, it says nothing about how individuals (who can own firms/businesses) have a propensity towards exploitation (remember slavery, hmm? Free labor!) towards their own end.
    Until we get to a point where we can say exploitation in any form is wrong, the incentive to work will be severely hampered. Why participate in a system that makes it legal to exploit, use, and dispose people at will, hmmm? Why should economists hide their normative and moral instincts to promote a system that generates wealth for a few, while using up the people who contributed to that success, hmmm? I’m no Marxist, but there is a serious disconnect in the relationship between firms and laborers.

    This is why understanding attachment theory is a powerful lens by which to formulate normative economic policies that really give people the opportunity to thrive. Work and effort is necessary in any endeavor, particularly production. If you want good incentives to get people back to work, how about we try treating them with dignity instead of a resource to be used up and disposed of? Scary thought, I know.

    1. Have to make a small edit here.

      I mentioned the supply curve would shift. That's a mistake on my part - it would really only shift if more people with specialized skill sets were in the market - maybe the equilibrium remains at the same price for labor, maybe it goes down; depends on labor demand shifts, too. I didn't make that distinction and connection with retraining the workforce. Also, didn't mention derived demand as a component of labor demand. As people have more money to spend on normal goods, in the short term, L is flexible, much more than K (capital), to meet demand. Costs will go up as most production functions have constant returns to scale.

      Again, my apologies. Ha.

  12. Why not let people draw on their future Social Security benefits to fund extended unemployment benefits? That has been proposed as a way to fund paid family leave and seems like a good way to fund any new (or even old) welfare benefit. We take money out of every worker's paycheck to pay for Social Security. If it turns out later that someone needs that money for leave or unemployment, then why shouldn't they be able to use it? It's their money after all. Also, suppose A and B earn the exact same income and pay the exact same tax over their entire lives. If A receives more other benefits than B during their working lives, then it's only fair that when they retire B receives a little more in Social Security benefits than A. That's equality.


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