Monday, December 9, 2013

What To Do About The Long Term Unemployed?

The Great Recession ended officially about 4.5 years ago.  However, we still have a large number of long term unemployed workers.  Congress is set to make a decision about extending or ending unemployment benefits for those who have been unable to find jobs.  Paul Krugman discusses some of the arguments about this issue.  Some arguments have been with us since governments first made unemployment benefits available.  On the other hand, how we deal with the long term unemployed raises some new questions.

The historical argument against unemployment benefits, favored by conservatives, is that they reduce the incentive for the unemployed to seek employment.  That is, unemployment is voluntary.  If the government did not reward voluntary unemployment, there would be no unemployment problem.  That argument is also consistent with the assumption of classical economists that the economy tends toward full employment, unless government intervenes in the operation of the market.  Krugman takes us through that argument, and concludes that most labor economists disagree with that conclusion.  There is such a thing as involuntary unemployment, and the majority are unemployed because there are fewer jobs available than the number of workers seeking jobs. There may be some skill mismatches, but its very likely that we have more employable workers than the number of unfilled jobs.

That takes us to the problem of what we should do about the long term unemployed. Krugman would like Congress to extend unemployment benefits, but he does not believe that Congress will decide to do so. The Republicans are opposed to extending benefits, and the Democrats are not willing to make an extension a precondition for a budget agreement.  He places the primary blame on Republicans who believe that unemployment is voluntary, and he accuses them of callousness.  He may be making the mistake of confounding the attitude that conservatives typically have about unemployment during a downturn in a normal business cycle, with the unemployment issues that we have been facing in our current business cycle.  This is not a typical downturn in the business cycle.  If we are in a period that Krugman and Summers have labeled as "secular stagnation", we may have to figure out how to deal with an economy in which jobs have become much more scarce than the number of employable workers.  In my view, we should be discussing that problem rather than blaming conservatives for being indifferent to the problems of the unemployed. 

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