An editorial in The Wall Street Journal this week discusses the proposal to extend jobless benefits for the eighth time since the recession started. This extension would mean the unemployed can collect benefits for up to 99 weeks, nearly two years. Is this a good idea from an economics point of view? Is this compassion? Or, are we creating a new, semi-permanent welfare state program that encourages people not to find work? Let’s talk about it now.
The unemployment statistics are not good. After 18 months and $862 Billion stimulus, unemployment is at 9.5%, there’s a 5-to-1 ratio of job seekers-to-job openings, 6.7 million Americans have been out of work for at least six months, 2.5 million American workers will run out of unemployment benefits, and about 2 million jobs have been lost.
What can we learn from economics? Without question, economists know that if you subsidize something, you get more of it. Of course, many of us have heard anecdotal evidence as well of unemployed people who only seriously look for work right before their benefits expire. More rigourous economic studies confirm that when unemployment benefits are extended, actual average unemployment duration increases.
What can be done? No one wants to see the truly needy and unemployed suffer. But, adding another $30B of deficit spending on top of $1.4 Trillion of deficit spending isn’t a great recipe for economic success.
The answer to the problem is not more unemployment benefits and it’s not more deficit spending. It’s to create a lot more jobs in the private sector. How do we accomplish this task?
The answer is a change in fiscal policies. America needs to lower taxes on economic growth. We need to cut taxes on income, savings, and investment. We also need to cut big government deficit spending. We can’t tax and spend ourselves into prosperity.
America needs pro-growth fiscal policies that have a proven track record of creating new jobs. They worked in the past. They will work again. Will Washington wake up in time – before we get into a double-dip recession or worse, a depression?
Citizen Economics Blog – News, Analysis, Insight, Practical Knowledge by Gerard Francis Lameiro, Ph.D.





Are Teenagers Helped or Hurt by Minimum Wage Laws?
A recent Wall Street Journal article cites a new study that deals with teenage unemployment and the minimum wage. About a year ago, the Federal minimum wage was raised over 40% to $7.25 per hour. One year later, what’s the impact of that minimum wage rate increase? Did it help or hurt teenagers seeking work? Let’s talk about it now.
Two labor economists whose work was published by the Employment Policies Institute have found a “significant drop in teen employment as a direct result of the minimum wage hikes.” In fact, over 100,000 less teens are employed than last year! That means the hike in minimum wage rates resulted in about a 2.5% decrease in teen employment.
From economics, we know that raising the price of a product or service tends to reduce demand for that product or service. In this case, there is less teen employment (fewer teens are getting jobs) because the price of teen labor services is increased by the government.
Minimum wage laws and maximum pay laws both cause adverse disruptions in the free market. Let’s eliminate these types of laws and let the free market set the prices for labor services that maximizes employment, especially during a period of high unemployment. After all, which situtation is better for a teenager or any worker – no job or a job at a lower pay rate?
Citizen Economics Blog – News, Analysis, Insight, Practical Knowledge by Gerard Francis Lameiro, Ph.D.