Tom McGee's Blog

Often these Wall Street Journal editorials are merely tiresome. This one actually hits home a little. Leading off the page, “Incentives Not to Work” rips off a quote from Larry Summers stating that unemployment insurance causes unemployed workers to stay out of work longer. The idea is that there’s a “reservation wage,” “the minimum wage he or she insists on getting before accepting a job.”

The implication is that this reservation wage is a number pulled out of thin air with no basis in reality or need. Though another reasonable calculation would be to take one’s mortgage, car payment, credit card bills, groceries, utilities, gas, etc., add them together, and come up with a number that will keep you from having your house foreclosed on.

Democrats in Congress, by extending benefits through this, the worst recession in our lifetime, are apparently doing an evil deed by giving the 9.7% of Americans out of work an incentive to stay that way.

Alan Reynolds of the Cato Institute has found that the average unemployment episode rose from 10 weeks before the recession to 19 weeks after Congress twice previously extended jobless benefits — to 79 from 26 weeks.

Now if you’re like me, as soon as you see the Cato Institute quoted you just know they’re going to try and pull the wool over your eyes with some misrepresented data point or askew analysis of policy. This time they don’t even try, it’s right there in the words “before the recession.” As though the recession were some meaning-free term, like “before the fourth episode of ’24′” or “before I bought my house in Vail.”

Unlike vacation homes or televised entertainments, the recession is the cause of the unemployment. Or rather, it is the unemployment itself. This point is so stupid-obvious I can’t believe it has to be pointed out. But there it is anyway.

I’ve got a little experience with this, as I mentioned above. From the beginning of 2006 I spent a couple of years without a staff job, alternating between collecting unemployment and going with “Plan B,” consulting gigs. The WSJ piece goes on to quote misrepresent (as far as I can tell) a piece by an Obama Administration Treasury official.

We also find that job search increases sharply in the weeks prior to benefit exhaustion

With the added commentary, “In other words, many unemployed workers don’t start seriously looking for a job until they are about to lose lose their benefits.” Um, not exactly. The quote is from the Summary and Conclusion of the Paper (page 28), but ignores the more complete reference on pages 20-21, “For the UI eligible, however, job
search increases sharply between week 15 and 26 of unemployment, from less than 20
minutes to greater than 70 minutes, and then falls back to around 25 minutes.” According to the WSJ people, nine weeks (a little over two months) constitutes “about to.”

They had me fooled, before I looked up the actual study, I thought they meant in the last few days, or a week. That behavior would at least be consistent with the feeling of total panic I felt after having sent out resumes, made phone calls, prowled job boards, called headhunters, sent out e-mails, for ten months without getting any result.

Also ignored is the section in the conclusion immediately following:

A finding that is inconsistent with Mortensen?s (1977) search model, however, is
that search effort appears to decline after week 26, when benefits run out, rather than
remain constant. This finding deserves further attention. One possible explanation is that
the unemployed become discouraged if they fail to find a job despite substantially
increasing their search effort before UI benefits run out at 26 weeks, and consequently
stop searching. A related explanation is that the unemployed may feel that they have
explored all of their plausible job opportunities after they sharply raised their search
effort in the weeks leading up to the exhaustion of their UI benefits, and rationally feel
they have little to gain from maintaining the same level of search effort over the next few
months.

Which belies the whole notion that they were sitting around waiting for the ski lift until circumstance lit a fire under them.

Or the footnote on page 20:

About one third of our sample of unemployed individuals (excluding those on temporary layoff) has an unemployment duration of 14 weeks or more.

Which shows us that of those lazy unemployment-insurance-collecting bums, a full third of them found jobs somehow, despite not looking.

On the previous page, the president of the AFL-CIO has penned a piece on the need to restrict private equity firms. He tells the sad story of the Simmons Bedding Company, which was flipped seven times in 20 years from one private equity investment company to another. Finally this “value-creating American company” had to declare bankruptcy after the the last leveraged buyout firm took home $77 million in profits, “on top of hundreds of millions of dollars in special dividends.” In the process, over 1,000 workers were laid off.

I suppose if we did away with this whole “reservation wage” thing, they’d all be free to go work at convenience stores or something. But how many Slurpees can they buy from each other, really? Though seriously, looking for a good job is a full-time job itself. Just how much time can you spend out on interviews, making phone calls, sending out resumes, when you’re tied to a cash register all day?

They at last come to the predictable conclusion that unemployment benefits are the sole reason for unemployment, and the Democrats have an “apparent desire to defend a jobless rate of 9% (now 9.7%) in the fall. Because despite the vast numbers of jobs lost (this means, by the way “there aren’t any jobs) over the last two years, if it weren’t for UI they’d all have jobs (jobs that don’t exist). One would think that, before UI, we lived in a golden age where everyone worked at a satisfying job that filled all their material needs, and there was never any unemployment at all!

But for me the best part — and this is why I always call it “The Funny Papers,” comes in the last paragraph: “If Republicans were really cynical, they’d let the new benefits pass and run against the higher jobless rate in the fall.” Oh please, let them be cynical enough to campaign by telling 10% of the voters that they’re too damn lazy. Please.