The problem here is that the anti-welfare lobby misrepresents its case. For example, when Neil O’Brien claims that higher benefits encourage people to stay on benefits rather than find work, what he should say is: “other things being equal, higher benefits will, at the margin, discourage people from seeking work.”
Put like this, four questions arise.
1. Is even this true? Yes, higher benefits encourage people to substitute work for leisure. But as Don says, there might also be an offsetting income effect; higher benefits allow people to afford bus fares to Job Centres, or a local newspaper, or child care whilst they are at interviews, or a pleasant-smelling clunge that’ll impress an interviewer. They might, therefore price people into work.
2. How extensive is the margin? One of my big gripes against the right is their tendency to assume that margins are more extensive than they are. And this might be the case here. Some cross-country evidence has found that the link between job search and the ratio of unemployment benefits to wages is statistically insignificant.
3. Isn’t there an aggregation problem here? Let’s concede that lower unemployment benefits do encourage people to look for work. For any individual unemployed person, this increases their chances of getting a job. However, unless aggregate employment increases, their increased chances come at the expense of lower chances of finding work for someone else. The question, then, is: does increased job search lead to increased aggregate employment?
Sunday, August 29, 2010
Publicada por Miguel Madeira em 14:26