Why, since 1970, has each new downturn added to the ranks of the permanently unemployed? Social science has not fully answered this question, but the best guess involves a combination of a generous social safety net, deindustrialization, and social change.
Read the whole essay. He takes a supply-side, incentives-oriented approach to dealing with the employment problem. For example,
We also need to make hiring workers less costly for employers. Temporarily cutting the payroll tax was one of the most constructive policies adopted during the Great Recession. We could enact a permanent payroll-tax reduction. The tax could be gradually phased in for workers once their hourly earnings went beyond a certain threshold. The payroll tax could be eliminated for workers who had been unemployed, at least for an initial period. The costs of reducing the payroll tax could be offset by raising the minimum retirement age for employees who hadn’t paid these taxes for enough years. Reducing mandated benefits, like health care, that employers must provide lower-income earners would help encourage work, too. Ideally, the reform of our health-care system will ensure that workers have health-care options that don’t unduly burden employers.
Pointer from John Cochrane, who comments,
Reforming the incentives of social programs could be a bipartisan effort (if anything can be a bipartisan effort these days). We spend less, we help people more.
But our social programs are based on normative sociology, not economics. That is, they have found that the cause of poverty is that rich people are mean to poor people, and the solution is redistribution (although in practice, most of the redistribution is taking money from some non-rich and giving it to other non-rich).
So who’d like to make a case that there is some configuration of incentives in which redistribution is not going to be needed? The one constraint is you don’t get to ignore poverty. I can’t wait to hear your answers.
I don’t believe anyone is trying to make a case that redistribution is never needed. What people are trying to do is to apply economics to the problem of how to help the poor.
As the most obvious example, the poor will be helped immediately by eliminating all redistribution schemes that are not directly targeted and directly proportional to poverty. Most prominent among those schemes are Social Security and Medicare, where 15% of every dollar earned by the poorest age cohort is sent directly to the richest. They are wildly unfair and economically inefficient, with more than half of earners paying more in payroll tax than income tax.
The correction here is to phase Social Security and Medicare out and help the poor with nothing but welfare out of the progressively financed and far more economically efficient general fund.
I have the answer, I can’t wait for someone who would actually listen.
I wonder if what we thought was women’s lib was really just the invention of (chemical and physical rather than behavioral) birth control and a PSST requiring more labor.
The usual response to anyone using the “out of the workforce” numbers is “education”. That’s why it would be good to have good numbers on male NEETs of all ages. It’s the NEETs, especially the ones who have effectively given up looking for work (whatever they tell the government or others they mooch off of) who have really dropped out of the game. If those numbers have been rising fast even after the dust settled from the GFC, then we’ve got big trouble coming our way.
I think one is likely to overestimate the impact of supply-side employment incentives if one doesn’t include the effects of a good psychological model of the motivation to work, especially for young males with below average skills. And also especially if they are going to get all the material necessities and some of the modern hedonic comforts of life, even as drop-outs.
Even if reforms make it suddenly become super cheap for an employer to hire such a person, their marginal productivity and thus wage will probably be low. It’s by no means clear if their perception of “total life utility” even goes up, since the trade-off between the little extra spending power in exchange for hard discipline and effort vs all that leisure and freedom is quite stark. It’s not even clear whether their status – and all the benefits that go with it, such as a marginal improvement in access to female attention – would even rise in their social milieau. So it’s entirely possible that the minimum amount they need to earn to get them out of bed in the morning is simply far above their marginal product, no matter how cheap and easy the government allows hiring (and firing) to be. I think this is the hidden logic behind those people who like to use the “jobs Americans won’t do” style of rhetoric.
And if that’s true, then the divergence will simply continue to expand between these types which can’t or won’t be employed at any market price, and those in higher skill groups who have a rapidly declining unemployment rate.
“And if that’s true, then the divergence will simply continue to expand between these types which can’t or won’t be employed at any market price, and those in higher skill groups who have a rapidly declining unemployment rate.”
That will continue so long as there is sufficient aggregate surplus and willingness to fund the expanding low marginal utility population’s comforts of life.
If at some point that situation no longer obtains…well…then things get interesting.
Possibly true, but a couple of things:
1. Low skilled, low pay work can still be a springboard to something better, even in the age of automation.
2. Their utility to the rest of us increases even if they personally experience no increase in utility.
3. They’re more likely to develop self destructive behaviors when completely removed from productive activity, which resulted in a further drain on societal resources.
4. Nobody aspires to be on the public dole, so maybe even if you can’t do much to help 40 year olds who’ve been out of the labor force for a decade just by tweaking payroll taxes this way or that way, it may make a difference for younger people by kinda catching them before they fall into that status.
wonder if what we thought was women’s lib was really just the invention of (chemical and physical rather than behavioral) birth control and a PSST requiring more labor.
From 1/3 to 2/3rds of people on welfare work, depending on the program. Half of those not working are either caring for others or chronically ill/disabled. Now if you really want to raise employment, it is clear how to do it from France and Sweden; have social benefits that make it easier to work such as free daycare/eldercare. Otherwise, this is blowing smoke.