That hotbed of logical and economic understanding, Salon, asks us to consider the idea of there being a labour shortage in the US at present. In which they say that it can;t be unemployment benefits instead it could be low wages.
Which is to fail to ask Sowell’s question – compared to what? That is, wages are low compared to what? Or, alternatively, unemployment benefits are high compared to what?
That report details an approximate 71% drop in job growth paired with a slight hike in unemployment, falling far below analyst expectations of a month-over-month boom. This prompted many “mainstream” or conservative pundits, along with Republican elected officials, to point toward a prime suspect: unemployment insurance.
Their logic is simple: if people are getting paid to do nothing, they have no incentive to do anything. But Democrats have argued that the reality is far too complicated to chalk up to one factor. Treasury Secretary Janet Yellen attributed the disappointing jobs report to a lack of proper child care and lingering fears about the pandemic. Others have pinned the blame on employers, citing low wages and poor working conditions as reasons why Americans might be more hesitant to rejoin the workforce.
There is that technical bit which is that if someone is being counted as unemployed then they are in the workforce, that’s what the word means. Those available for work.
The background concept here is the “reservation wage”. Work is, of course, a cost to us, the benefit is the wage we get from it. Humans tend to do less of those things which are more expensive. Not because they or we ought to, it’s just an observation.
The wage we get from going to work is the income we get minus the income we would have had if we didn’t go to work. The incentive to put on the suit and tie is thus the marginal or extra income from work. Or, looking at it the other way around, what’s the reservation wage? How much do we need to be paid for get off the couch and go do something?
This is where the compared comes in. If unemployment benefits are high then the reservation wage is. And also so then are some wages on offer in the economy low. Because the net income from work declines either way – wages are low or benefits are high, it’s the same thing.
So the logic being deployed there is that it can’t be high unemployment benefits which are causing the slow job uptake, it’s because unemployment pay is high that there’s a slow job uptake.
Well done to Salon there, eh?
Within a matter of days, at least 16 state governors — including such nationally prominent Republicans as Kristi Noem of South Dakota, Doug Ducey of Arizona and Brian Kemp of Georgia — seized the opportunity to slash or eliminate aid to the jobless, even as the U.S. struggles to recover from the effects of a global pandemic.
Ah, but this is to miss a trick. This is, in fact, excellent:
This is where the joy of 18 states leaving the federal system comes in. Now, we’ll have two sets of unemployment insurance policies operating in an economy in which all other policies and conditions (the growth and interest rates, the money supply, fiscal policy, and so on) are the same. It should be reasonably easy to then tease out, over the next few months, the effects of the different unemployment insurance policies. Expanded and increased unemployment insurance increases unemployment, or it doesn’t. One way or the other, answers are coming.
We will have done an important experiment, we will have tested the two hypotheses, and then, we will know.
Quite so, we’ll find out whether it’s high unemployment benefits causing the problem or high unemployment benefits causing the problem.