Unemployment ending?

Well, not quite. According to the news, 1.3 million will be losing unemployment checks as the extended unemployment benefits come to an end.

Note the extension was from 26 weeks (~6 months) to 99 weeks (~2 years) at one point and, if I’m reading the article correctly, 73 weeks (~1 year and 3 months). All of those periods seem long for something that is meant to be a temporary stop-gap.

One lady who will stop getting unemployment checks interviewed on one TV news spot that I watched said she was going to have to start spending more time looking for a job and less time on school. Isn’t looking for a job a condition of receiving unemployment? Don’t be to harsh, but unemployment isn’t meant to be a ‘take time off from work so you can go to school’ program.

Another news spot said that unemployment benefits help the economy because recipients spend the money. It didn’t say where that money came from. (Answer: A taxpayer, either now or in the future, who could have also used that money to ‘help the economy’).

Another lady who will stop receiving unemployment checks was asked what she thought about Congress going on break without extending ‘her’ benefits. She said something like (paraphrased from memory), My benefits shouldn’t be dependent on the whim of other people like that. Apparently, not realizing that her receiving the benefit was dependent on exactly that whim.

Of course, none of the folks who will not be receiving unemployment checks any longer took the time to thank their fellow taxpayers for helping them out. How rude.

No bias here

From The Kansas City Star newspaper: New labor laws in Kansas and Missouri bolster the boss

The lead-off:

The balance of power between businesses and their workers shifted in Kansas and Missouri this year — in favor of the boss.

So, what are these laws? From the article:

Employees fired for being late for work without good cause will be barred from unemployment benefits if they are warned first and if the employee is notified of the employer’s attendance requirements. The new law no longer requires the warning to be in writing.

Laid-off workers can no longer collect a severance payment and unemployment simultaneously. An employee receiving a six-month severance, for instance, has to wait six months to draw unemployment.

The length of unemployment benefits could be shortened. Currently, the unemployed in Kansas can draw benefits for 26 weeks. Starting in 2014, a person will qualify for a maximum of 26 weeks of unemployment if the jobless rate is 6 percent or greater. Eligibility will drop to 20 weeks and then to 16 weeks as unemployment falls.

Guidelines have been changed for assessing workplace injuries, a move that labor supporters say will lead to reduced benefits for injured workers.

Those new laws and others that ban Wyandotte County from requiring union-scale wages on public jobs and require drug tests for unemployment benefits, critics say, add up to a bad year for labor.

And:

A similar controversy over unemployment erupted this year in Missouri when lawmakers passed legislation making it harder for employees fired for misconduct to qualify for unemployment.

The first thing I noticed is that most of these didn’t seem to do anything to the boss. Most seem to set more restrictions on collecting unemployment.

Here are my recommended edits to the headline and lead-off: New labor laws in Kansas and Missouri bolster the boss taxpayers

 

The balance of power between businesses taxpayers and their workers and people collecting unemployment shifted in Kansas and Missouri this year — in favor of the boss taxpayers.

I’m amazed that the reporter found critics to these laws. Why should taxpayers reward people for misconduct on the job and drug use? Seems like we have better use of our dollars than that.

keynesian economists misjudge the economy

Natural disasters like hurricane Sandy tend to spur the following food fight among economists.

One or more economists — seeking attention and a chance to look clever — say something stupid like well, at least, the rebuilding will be good for the economy.

In response, other economists quote Frederic Bastiat’s Broken Window Fallacyask why we don’t smash everyone’s house to help the economy and lecture us that economic metrics, like GDP, do not take into account the value lost in destruction.

However, I think that both sides of this food fight talk past each other. Silas Barta’s has similar thoughts.

While I agree with the second set of economists, I think they ignore what I think is one key point of the first set of economists argument — ‘slack resources’.

The first set of economists know destruction is bad, but believe that because the economy wasn’t operating at ‘full capacity’, it had slack resources that can now be put to good use in the rebuilding effort. The second set of economists never address this point.

Here’s how I would address the slack resources argument: ‘Slack resources’ is a subjective, incorrect and misleading way to characterize what’s happening in a bad economy. So is the idea of ‘full capacity’.

It looks right-enough that almost nobody questions it, even the second set of economists. Except, maybe, one that I know of (Arnold Kling).

And I can understand why so few people question the ‘slack resources’ hypothesis. When you see a friend who is unemployed and struggling to find work you tend to think of him as a slack resource.

It’s like seeing your kid doing nothing on a Saturday afternoon and you get this strong urge to put him to work. He or she appears to be a slack resource.

It’s natural for us to think — We should be able to put these folks to work! They’re ‘slacking’ off.

But, I believe the ‘slack resources’ characterization is incorrect and misleading. Scratch past the surface you will find more to the story.

Have coffee with that unemployed — slack resource — friend and you find out he has turned down three job offers, because they were for 20% less than what he made at his previous job.

You ask, why not accept the pay cut so you can get back to work? Maybe you’ll get in there, knock their socks off and be back to your old wage in no time.

Well, it turns out he had enough savings and unemployment benefits to allow him to hold out for a job that will pay him his previous wage. Why should I accept less until I absolutely have to (i.e. when I run out of unemployment benefits)?

We find out our friend isn’t a slack resource. Rather, his skills are being re-priced and he doesn’t like it.

I don’t blame him. Nobody likes to have their wages “re-priced” down, but it happens all the time and it happens due to decisions that you and I make.

When one of our favorite Hollywood superstars makes a stinker of a movie that we choose not see, he may have to accept lower pay on the next movie to get studios to hire him. He could say, if only my fans would have supported me and seen that movie. His fans might respond, if only you would have made a movie worth seeing.

The first set of economists in the food fight see a bad economy as having slack resources. But what they truly reveal to me is that they don’t understand what’s really happening — things are being repriced based on the decisions that we make.

This is lack of real understanding of a bad economy is readily apparent when you consider how many barriers to repricing the first set of economists have had a hand in putting in place.

Minimum wage is one such barrier. It’s also the reason why there are so many officially unemployed unskilled workers at the moment. The market clearing price for unskilled labor is below the minimum wage, which is a price floor. Econ 101 teaches us that when the market clearing price is lower than the price floor, we will have a situation where supply (workers) exceeds demand (jobs). That’s exactly what we have.

This is fodder for another post, but it never seems to bother these economists that their favored wage price floor is causing so much unemployment. They’d rather feel sanctimonious about supporting something that seems well-intended than allow the official price of unskilled labor to move below what they have deemed an acceptable level.

Unemployment benefits is another such barrier to repricing. Many people believe that the low amount one receives from unemployment insurance is not enough to prevent them from accepting  work and they may be right if we lived in a simpler world.

But, in this world we have folks who have some savings, working spouses and the ability to take on black and gray market jobs to earn some coin while also receiving unemployment. We also learn in Econ 101 that incentives matter. If I accept an official lower paying job, I lose my unemployment check. Why do that when I can accept an unofficial lower paying job and continue to receive unemployment — or ‘double dip’?

These barriers slow the repricing process and lengthens the ‘bad economy’. They are the reasons why our recessions seem to take longer and longer to recover from.

If our friend didn’t have a free unemployment check that he would lose by accepting an official job, he might accept an official job sooner.

So, the next time you hear an economist talk about slack resources, give some consideration to whether the resource is really slack or whether someone just hasn’t been willing to accept a lower price for that resource and why.

Coming soon…repricing downward is awful, but is it really that awful?