Wednesday, November 18, 2009

Larry Summers Knows Why Unemployment Is So High

Writes Alan Reynolds:
Summers knows why the US rate is so high. He explained it well in a 1995 paper co-authored with James Poterba of MIT: "Unemployment insurance lengthens unemployment spells."

That is: When the government pays people 50 to 60 percent of their previous wage to stay home for a year or more, many of them do just that.

And the stimulus bribed states to extend benefits -- which have now been stretched to an unprecedented 79 weeks in 28 states and to 46 to 72 weeks in the rest. Before mid-2008, by contrast, only a few states paid jobless benefits for even a month beyond the standard 26 weeks.
It really is that simple. Think about it. A wage is a price like any other, if someone really wanted to work they would lower their asking price until they were hired.

At some price everyone gets hired, unless, of course, there is a system in place that pays people a decent wage not to work.

The current unemployment extensions are a tiger by the detail. You have high unemployment because of unemployment insurance. Because of the high unemployment, Congress extends unemployment insurance which prolongs the unemployment.


1 comment:

  1. Some reporter needs to bring that up at a press conference, and then sit back and enjoy the squirming.