Job hunters slack when assisted

There was a time when you could rely on taxes to be the topic in the United States come mid-April. No longer. This year it's jobs, jobs, jobs.

In Washington, Democrats want to extend expiring unemployment insurance. They see their plan as action in the spirit of Franklin Roosevelt, who put forward so many programmes for the worker with his New Deal.

Republicans are muttering about what the benefits do to individual initiative. But they are also going along with the plan to extend jobless payments.

The emphasis on extension sounds humane and necessary. Hundreds of thousands of families are losing benefits.

Yet that emphasis is counterproductive, because it overlooks the problem that is making it hard for the jobless to get work in the first place. Part of the problem is the relationship between the cost of hiring for employers and the cost of being unemployed for workers.

By making hiring expensive through mandates such as health care, the administration is discouraging hiring. By extending benefits for the jobless, the same government is making unemployment less painful — cheaper — for workers.

The combination sustains unemployment at higher levels, not lower.

One economist illuminating this dynamic is Casey Mulligan at the University of Chicago. Mulligan points out that many industries aside from manufacturing are now recovering. But many companies are finding ways to do so with fewer workers. This isn't a general recession any longer. It is becoming a jobs recession where the incentives for employer and employee are out of whack.

Mulligan also notes that there is specific evidence of the counterproductive force of making unemployment less expensive.

Two scholars, Stepan Jurajda and Frederick Tannery, looked at Pittsburgh in the first half of the 1980s, a period when the nation had two temporary increases in unemployment benefits.

They determined that one third of those claiming unemployment found work within weeks of the expiration of their benefits, but not before.

Apply that Pittsburgh experience to today, when insurance is also running out. What it tells you is that jobs will come back faster if Washington doesn't extend insurance benefits.

The Pittsburgh data are merely a tiny part of a large body of evidence. In policy discussions we make a big deal about the differences in payments to the unemployed, treating "relief" as different from "welfare" and "welfare" as different from "unemployment insurance."

Effectively, they all function the same way: they damp the incentive to find a job.

Labour's folly

The ultimate evidence here is from the 1920s, when the Labour Party came to power in the United Kingdom for the first time. Labour passed laws that gave unions power to demand higher wages and to create unemployment benefits.

The result was that employment became more expensive for companies. Unemployment, meanwhile, became relatively less expensive to workers because the workers now received relief payments.

As scholars Daniel K. Benjamin and Levis Kochin pointed out in the Journal of Political Economy paper as far back as 1979, the moment was one in which "unemployment benefits were on a more generous scale relative to wages than ever before or since."

The result was the mother of all jobless recoveries.

— Bloomberg