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Chris
12-09-2012, 12:51 PM
The main idea is, I start by looking at changes in public policy that affect regular families. So, I'm not looking at banking policy and things like that. Things that affect regular families: the Unemployment Insurance (UI) program, Medicaid program, food stamp program, other safety net programs that can help people when their incomes fall or they are out of a job. I looked at those; I looked at how they were run before the recession; I looked at how they were run during the recession. And there were changes, significant changes. And then I tried to quantify that. Some of the changes were pretty important. Others were more minor. I tried to quantify those things and come up with kind of a total impact of the new government rules on how much help you could get when your income was low or you were out of a job or both. And then I said: Okay, once I have an understanding of how much help and incentives change, then I ask: When that much help comes along, how much does that affect people's behavior? Economists have studied that second question a long time, and all I do is bring it into the 21st century, and say: we have 21st century rules changes here; what kind of changes in the labor market should we expect? And the answer was: Well, labor markets should be depressed as a result of those rule changes. And I work out how much, and it turns out about half, probably a little more of the depression of the labor market you can link directly to these new rules for helping people when they are unemployed or have low incomes.

That's the opening of the podcast Mulligan on Redistribution, Unemployment, and the Labor Market (http://www.econtalk.org/archives/2012/12/mulligan_on_red.html) (note available at link).

Here's my brief summary: Unemployment insurance and other unemployment policy changes increased enough to change the incentive away from seeking employment to adjusting one's spending in order to accept unemployment the way a retiree would, say about 20% less spending. But not only is it costing us more to fund unemployment, those who this choose unemployment reduce demand on productivity. The notion that increasing funding unemployment in order to stimulate the economy doesn't work (pardon the pun).

Peter1469
12-09-2012, 02:15 PM
I don't think we could eliminate these safety nets, but they should be safety nets rather than hammocks, if you get what I mean.

Chris
12-09-2012, 04:06 PM
Great analogy. A safety net should stop your fall so you can get back up on your feet not bask in the dependency hammock of government.

Chris
12-12-2012, 07:28 PM
Comments on the Mulligan interview:


It’s a very interesting argument. It isn’t saying that we shouldn’t have a safety net. It’s saying that one of the consequences of a safety net is that unemployment will not respond to economy recovery the way it might otherwise.

Before the state of the recovery became an ideological football, most (all?) economists would agree that paying people when they are unemployed would encourage unemployment. Increasing the amount paid to unemployed people would make the unemployment rate higher than it otherwise would be. The question remains as to the magnitude of the effect. I’ve been a little skeptical of the potential magnitude because unemployment compensation isn’t that generous. What Mulligan shows is that when you combine all of the benefits that come when you’re unemployed, it’s a reasonably large sum of money for a lot of folks. He also tries to quantify the precise impact of that generosity across the economy. I’m skeptical about his methodology but put that to the side. Here’s a report from MSNBC which lends support to Mulligan’s claim (HT: Steve Spiller): ...

@ Is the safety net keeping the unemployment rate high? (http://cafehayek.com/2012/12/is-the-safety-net-keeping-the-unemployment-rate-high.html)

Follow link for video.