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Not Heartless on Unemployment (Video)

Anthony Randazzo
July 22, 2010, 12:08pm

Following up on my article from yesterday, I appeared on RT last night to discuss the unemployment problem (video below). Naturally, I am portrayed as the cold, heartless bastard for not wanting to "help" people and extend unemployment benefits. But the story is so much more than that.

At the heart of this issue is a difference in perspective. I am looking at society from a macro view and wanting a stable economy going forward into the future. My critics are focused more narrowly on individuals and current pain. Theirs can be a more emotively compelling argument. And why shouldn't it be? There are people struggling to make ends meet.

So what to do? We can a) have the federal government borrow more money to hand out to individuals with out jobs for up to two years; or b) encourage a shifting of labor resources in the economy where the demand for employment can meet productivity demand and generate a more stable recovery.

Obviously that is a loaded way of framing the debate, but it is what this question boils down to. Do we want to perpetuate the economy of yesterday, or do we want to build a better for tomorrow? In English (as opposed to the economic jargon of my a-b options), I believe that unemployment would be best solved if those wanting work went to where the jobs are. There are jobs available all over America, just not in the areas where there is highly concentrated unemployment. If, after many months of looking for work in the same area a job can not be found, then some people may need to look elsewhere. For a city like Detroit, with roughly 30 percent unemployment, this is a reality.

Here is the rub: a lot of people don't want to move. I know many unemployed members of my extended family in the Detroit area want to say with their support network. And for them maybe they should stay. But they should also use that support network until they get a job, not the federal government. And that is because if we are ever going to move towards a stable economy we have to end the cycle of government misaligning resources in the economy.

Detroit is a perfect example because the city has only survived this long because of government (state and federal) assistance. Without government subsides and preferential tax treatment, the bad business models of the big U.S. automakers would have failed a while ago. Instead, unions demanded unsustainable wages with government support that kept people in Detroit longer than they should have. Take away the government subsidies, and people would have left Detroit a while ago. The difference would have been it would have been gradual and less of an economic shock. The city would have adjusted to a new industry or set of industries and adapted to an evolving economy.

So now we have a city with concentrated unemployment because the government spent money to keep them there. How can the solution to that problem be for the government to spend more money to keep them there? I don't know how many of Detroit's residents need to move, and neither does any government official. But if unemployment benefits were more limited we'd see more people moving, and the necessary number of laborers would move.

There are a number of benefits to this:

  1. Moving labor resources (people who can work) to cities where there is a demand for employees means higher productivity for the economy that can grow exponentially.
  2. Having people leave highly concentrated unemployment areas means less pressure on local governments having to provide services with declining revenues.
  3. And individuals finding employment elsewhere in the economy will see an uplift in morale that will increase consumer confidence and also benefit economic growth.

There are those that argue I am intellectually dishonest in my position, that there is no academic research to support this point of view. However, there is strong, respected research that shows extending unemployment benefits does extend the unemployment problem. Here is a paper from S. Jurajda and F. Tannery that shows empirical evidence proving that unemployment insurance extends the duration of unemployment. Here is a second paper, from E. Engen and J. Gruber that finds the mere existence of unemployment benefits reduces family savings rates by as much as 14 percent because of dependence on the safety net. Here is a third paper, from C. L. Rodgers linking unemployment benefits and unemployment duration. Here is a fourth, and a fifth. (Groundless ad hominem attacks don't advance the debate Mr. Sise.)

I understand that studies don't put food on the table. But I mention them to say I am not coming at this from a cold hearted point of view. Extending unemployment benefits really would make the problem worse. It will mean longer unemployment, a longer recovery process, and dragged out economic pain. If you look for a job in the same place for 99 weeks and haven't found one, while hundreds of thousands of others are doing the same thing in your same location, staying there sounds unreasonable even without the evidence. I realize it is not easy, but if a network of family and friends aren't the answer, then taking your skills and abilities elsewhere is the best choice for solving the unemployment problem.

The interview below starts at minute 3:50...


Anthony Randazzo is Director of Economic Research


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