Saturday, March 06, 2010

Extending benefits increases unemployment - Krugman

In their textbook Macroeconomics Paul Krugman and coauthor Robin Wells say:
Side Effects of Public Policy. In addition public policy designed to help workers who lose their jobs can lead to structural unemployment as an unintended side effect. . . . In other countries, particularly in Europe, benefits are more generous and last longer. The drawback to this generosity is that it reduces a worker's incentive to quickly find a new job. Generous unemployment benefits in some European countries are widely believed to be one of the main causes of "Eurosclerosis," the persistent high unemployment that affects a number of European countries. [p. 220]
Yes, extending benefits results in people spending more time without work. The Nobel laureate economists says so. What does Krugman the political columnists say? Responding to Senator Jon Kyl of Arizona this week: Kyl's words:
... unemployment relief "doesn't create new jobs. In fact, if anything, continuing to pay people unemployment compensation is a disincentive for them to seek new work."
Krugman scoffs: "To me, that's a bizarre point of view--but then, I don't live in Mr. Kyl's universe." (Why doesn't he address him as "Senator"?) I believe Krugman the professor in his textbook, not Krugman the Enron adviser and political pundit.

No comments: