Much noise is being made about how absolutely awful people are being in their insistence that those out of work should, if they are capable of work, at least try to find some. It’s even possible that some people are being absolutely awful about it. However, there’s a very important point that those complaining seem not to have quite grasped. Not insisting upon that trying to find work makes both the unemployed and the rest of us poorer. A new paper from the US:
This paper provides new evidence on job search intensity of the unemployed in the U.S., modeling job search intensity as time allocated to job search activities. The major findings are: 1) the average U.S. unemployed worker devotes about 41 min to job search on weekdays, which is substantially more than their European counterparts; 2) workers who expect to be recalled by their previous employer search substantially less than the average unemployed worker; 3) across the 50 states and D.C., job search is inversely related to the generosity of unemployment benefits, with an elasticity between −1.6 and −2.2; 4) job search intensity for those eligible for Unemployment Insurance (UI) increases prior to benefit exhaustion; and 5) time devoted to job search is fairly constant regardless of unemployment duration for those who are ineligible for UI.
While this specific information is new the basic idea isn’t. Richard Layard has been saying much the same thing for decades:
If you pay people to be inactive, there will be more inactivity. …. Europe has a notorious unemployment problem. But if you break down unemployment into shortterm (under a year) and long-term, you find that short-term unemployment is almost the same in Europe as in the U.S. – around 4% of the workforce. But in Europe there are another 4% who have been out of work for over a year, compared with almost none in the United States. The most obvious explanation for this is that in the U.S. unemployment benefits run out after 6 months, while in most of Europe they continue for many years or indefinitely.
People really do respond to incentives and generous and long lasting unemployment benefits really do provide an incentive not to look for work all that hard (to put it at its mildest).
No, we don’t want to punish those who cannot work: but we most certainly do want to encourage those who can and thus we really do need to reform the welfare system. Even if not perhaps be absolutely awful while doing so.