Tuesday, August 30, 2011

Krueger Knows Unemployment Economics Better Than Obama

From The Wall Street Journal Opinion, "Krueger vs. Obama: The new chief White House economist on jobless benefits."
President Obama yesterday tapped Alan Krueger of Princeton to be his new chairman of the Council of Economic Advisers....
As early as next week the President is expected to call for another extension of unemployment insurance benefits, which are currently available for 99 weeks, or nearly two years. Here is what Mr. Krueger wrote in a study with Bruce D. Meyer for the National Bureau of Economic Research Working Paper series in 2002:

"This chapter examines the labor supply effects of social insurance programs. . . . The empirical work on unemployment insurance (UI) and workers' compensation (WC) insurance finds that the programs tend to increase the length of time employees spend out of work."

The authors found that the incentive effects of unemployment insurance on recipients to delay finding a job are not insignificant and that "the estimates of the elasticities of lost work time that incorporate both the incidence and duration of claims are close to 1.0 for unemployment insurance."

For people who didn't attend Princeton, this means that paying people not to work increases the incentive not to work and thus tends to encourage longer periods of joblessness. This sounds closer to what critics of endless jobless benefits have been saying than to the White House policy line.

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