Yesterday I was quoted in an AOL Jobs article:
With five unemployed workers for every job opening, it’s unlikely that jobs are going unfilled because people are at home sitting on the couch collecting their unemployment checks, even with the disincentive to find work, said economist Jodi Beggs, in an e-mail interview with AOL Jobs. Beggs also pointed out that unemployment benefits improve the ability of people to find work. The money allows job seekers to pay not only their household costs, but also job-seeking expenses such as child care, transportation, clothing and other expenses.
Instead of having to accept a lesser-paying job out of necessity, unemployment benefits allow workers to be choosy, Beggs said: “Unemployment benefits in part give workers a bit of leverage with employers and some freedom to find a good job match rather than take the first thing that comes along. This dynamic is potentially in the best interest of the economy in the long run, but its easy to see it in the short run as employees being lazy or too picky.”
The good news is that I wasn’t misquoted. The bad news is that nothing I was quoted as saying is very interesting. What I emailed to the reporter was the following:
The simple answer is that yes, offering unemployment benefits reduces the incentive to find work. (This is simply due to the notion that it is nonsensical to think that people would try harder to find work if they were getting paid to stay home.) However, that is not the end of the story. First, while the benefits may decrease motivation, it also increases the ability of people to find work. This is because there are certain costs associated with job seeking, such as childcare, transportation, suits, etc., and having some form of income makes the logistics of the job search easier, especially if a household has to contemplate moving in order to find work. In addition, given the ratio of unemployed people to available jobs (about 5 to 1 last time I checked), it’s not likely that jobs are going unfilled simply because people are at home sitting on the couch collecting their unemployment checks, even with the disincentive to find work. Labor markets are more nuanced than what an aggregate measure of unemployment can convey, and the causes of persistent unemployment are likely different in different markets. For example, highly skilled workers who can’t find work in their fields are even finding it hard to “downgrade” to lower paying jobs, not because they are unwilling but because employers don’t want to hire an overqualified person who will likely leave when the economy improves. In other markets, employers seem to be looking to get a bargain by lowering compensation under the assumption that unemployed people will be happy to take what they can get. While this often makes sense economically (and could even allow employers to hire more people at a lower wage), workers tend to balk at these sorts of practices. Lastly, unemployment benefits give workers a bit of leverage with employers and some freedom to find a good job match rather than take the first thing that comes along. This dynamic is potentially in the best interest of the economy in the long run, but it’s easy to see it in the short run as employees being lazy or too picky.
Okay, fine, this isn’t particularly interesting either, but it got me thinking about this whole unemployment deal. Managers facing tough economic times have a number of unpleasant options. One of these options is to produce less output and lay off the people who are no longer needed to produce the new quantity of output. (Note that this option would keep the pay of those who are retained roughly the same as before.) Another option is to reduce the hours/workload of workers and/or reduce their pay. This option would allow the company to keep everybody on in some capacity, but it doesn’t happen as often as might objectively make sense. This is probably because workers get very cranky when their wages get cut, and it could make sense to have, say 10 percent of your workers laid off and really upset (but out of your hair since they’re not there anymore) than to have 100 percent of your workers pissed off but still at work. Because of this tradeoff, the employer has an incentive to pursue a policy that is less fair than he or she might otherwise like. Therefore, I don’t have a particularly strong moral objection to tax dollars (disproportionately contributed by those who are still employed) being put towards unemployment benefits, but it’s still important to understand the causes of unemployment and the effects of such benefits.
I read a lot of stories about people who claim to be unemployed because they can’t get a job that they are qualified for but also can’t downgrade because employers fear that they will leave at the first opportunity or be difficult or entitled or whatever. I’m not entirely sure how I feel about these claims, but I do know that I find the following graph from the New York Times Economix blog pretty interesting:
(Note that the measure on the y-axis is a little odd and requires some thought.) If employers are concerned about people leaving after a short period of time, wouldn’t they be unwilling to hire the school-aged (age 16-19) kids? After all, they are the ultimate short-term employees. I do notice that the seasonal increase in this employment is smaller in worse years (2008-2010) than in previous more prosperous years, but it’s not like companies have stopped offering summer employment because they have plenty of adult workers to fill those spots. It’s hard to argue that these school-aged individuals getting this employment are more qualified than all of the unemployed adults, so there has to be some other explanation.
One explanation is that these jobs are seasonal themselves (lifeguard, ice cream truck driver, who knows) and unemployed adults don’t want to take them because they aren’t permanent employment solutions. This is fair if the summer jobs could jeopardize the possibility of future unemployment benefits. Another explanation is that employers really are worried about hiring adults for “kid” jobs, either because the adults just don’t fit the desired profile (which is technically a form of age discrimination) or because the employers are worried that the adults might become disgruntled and difficult to work with. Note that the first explanation is a supply issue (since people are the suppliers of labor) and the second explanation is a demand issue (since employers are the demanders of labor). As such, I am skeptical of any reports that unemployment is solely either a supply or a demand issue.
On the incentives front, I tend to take a “people in glass houses” approach- helpful or not, I would probably stay on unemployment rather than take a job at McDonald’s (apologies to Mickey D’s for using you as the representative crappy job- I very much enjoy your products every once in a while and even had a McFlurry just yesterday), so I can’t really judge on an ethical basis. Let’s just say that you probably wouldn’t want me as an employee anyway and leave it at that. 
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