Getting People Employed Does Not Equal Getting The Economy Back To Full Capacity

Tim Carney is not happy with the debate over the unemployment insurance (UI) debate. He cites a study finding that UI benefits account for “most of the persistently high unemployment after the Great Recession.” And while the scale of the effect is crazy — I’ll hand it over to Danny Vinnick to explain why — the raw fact that there would be some disincentive effect is perfectly reasonable. UI benefits essentially pay people for not working, so of course they’re going to be a bit more inclined to not work. Tim does a reasonable job of laying out how this happens on the individual level, and to his credit he characterizes it as economic rationality rather than laziness.

But then Tim throws out this at the end:

Liberals dismiss the disincentive effects [of unemployment insurance] today, arguing there just aren’t jobs out there. Maybe the jobs aren’t there because lengthy unemployment insurance is killing these jobs. This is a complex debate. It would be nice if we could have it.

This confuses what we mean when we talk about jobs. “Job creation,” “employment,” or the Bureau of Labor Statistics’ monthly job reports all mean the number of actual hires. That’s what the study Tim cites is referring to as well. But when we liberals talk about how there just aren’t enough jobs “out there,” we’re talking about BLS’ JOLTS data. That measures job openings — the amount of jobs in their untapped potentiality, as opposed to the number of jobs people have actually been hired for. It was one job available for every 2.9 people looking, at last count. The disincentive effects of unemployment insurance can drive down the number of hires, but not the number of raw job openings.

Employers create a job opening for one simple reason: they think it will increase their profits even after the additional expense of putting the new hire on the payroll is accounted for. What creates that circumstance of potential profit is untapped demand, pure and simple. If there’s not enough demand, the new hire won’t result in enough new sales, no matter how virtuous a worker she is. You can’t sell to customers who aren’t buying.

Generating enough demand throughout the economy to create jobs for everyone who wants one is an irreducibly ecological question. You cannot boil it down to the hard work and initiative of one person taking one particular gig. Individual agency is irrelevant here. And while there are lots of ways to boost demand, they all boil down to either increasing inflation or taking money from rich people to give to to poor people — moves Tim and his conservative cohorts are roundly opposed to in nearly all instances.

At any rate, if we didn’t boost demand but kept UI, we’d get more or less get the situation we’re in now. If we didn’t boost demand and didn’t keep UI, then yes, we’d get a slight uptick in people taking the available jobs more quickly. But they’d still be taking those jobs in a terrible economy in which wages are depressed and jobs are scarce. UI benefits have an unusually high mutliplier, and if they’re financed by taxes on the wealthy or by borrowing, the economic drag from the revenue collection will be virtually zero. So in terms of boosting demand, moving from people spending their UI benefits to spending their income from newly acquired shitty jobs would basically be a wash. So the “one job for every 2.9 workers” ratio wouldn’t change. And once that one job was filled, the other 1.9 workers would be left high and dry. Most likely, they’d just drop out of the labor force entirely, leaving the economy as a whole poorer for decades.

We do not want people to simply take what jobs are available in a terrible economy more quickly. We want the economy to be not terrible. Tim’s article and the entire conservative position on UI benefits operate by obfuscating this basic distinction.

Meanwhile, if we boosted demand but got rid of UI, we’d get way more employment than we have now, precisely because there’d be more jobs available for everyone to snatch up. The 1-to-2.9 ratio would even out. But if we boosted demand and kept UI, we’d still get way more employment than now, because the supply of jobs would go up relative to the supply of labor, which would drive up wages, making a job more attractive to the vast majority of workers than staying on benefits. Tim worries this second effect on wages is good for the employed but bad for the unemployed. But that only holds if you assume the terrible economy and the 1-to-2.9 ratio is the new unescapable normal. (Most likely because you’re ideologically opposed to the policies that would prevent them from becoming the new normal.)

In short, how much demand the economy has to work with, and thus how much it can produce, is everything. All the presence or absence of UI does is determine how much human suffering occurs in the interim. With all due respect to Tim, his concern about “tradeoffs” is a giant non sequitur. There’s no legitimate debate to be had here. What Tim actually wants is a circumstance in which conservatives’ deep emotional investment in believing the universe does not work the way it works is nonetheless treated as worthy of respect by people who actually understand the economics of the thing. There are a lot of things I could call that circumstance, but a “debate” isn’t one of them.


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