Arnold Kling  

Policies for Structural Unemployment

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Mark Thoma writes,


Provide [income support for the unemployed] in return for jobs that do useful things for the community. That is, bridge the time while structural adjustments are underway with useful employment for those waiting for the structural changes to be completed.

Read the whole thing.

I would hate to see people equate "jobs that do useful things for the community" with government jobs. Yes, government workers do useful things. But private sector jobs are useful for the community, also. In fact, their usefulness to the community is measured and tested by the market process, which is not the case for government jobs.

If the government has $50,000 to spend creating jobs, it would be better to pay a subsidy of $10,000 per job for five private-sector jobs than to create a single $50,000 job.

Further thoughts on structural unemployment policy:

1. Count me as all in for cuts in the employer portion of the payroll tax.

2. Reduce public sector compensation, so that government can maintain services and employment without raising taxes. Keep government compensation subdued until you start to see a buildup of vacancies in government jobs.

3. Allow health insurance companies to market catastrophic health insurance across state lines. This will enable small businesses to increase employment more readily.

4. Abolish all Federal education programs and replace them with vouchers and prizes. This would encourage entrepreneurship in education.

5. Encourage states to create health care enterprise zones, where firms could offer health care without credential requirements. This would encourage entrepreneurship in health care.


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CATEGORIES: Labor Market



COMMENTS (7 to date)
Tom S. writes:
2. Reduce public sector compensation, so that government can maintain services and employment without raising taxes. Keep government compensation subdued until you start to see a buildup of vacancies in government jobs.

A few issues related to this: (1) the reduction in wages is going to drive out employment and still reduce services. Most of the slack in the labor market is still within lower tiers of education.

(2) Of those remaining, naturally, will be the least mobile or older workers close to their pension. You could argue this helps contribute to the private labor force, but it seems this shift would be rearranging the chairs on the Titanic than adding jobs.

(3) A build of vacancies tends to be erroneous since state and even local-level vacancies have a finite time-limit. Once the position remains unoccupied for a time, it is essentially lost to the respective agency.

None of my critiques help solve the issue, and government reorganization may be necessary (e.g., more IT expenditures to help maintain services on less staff), but I don't think item 2 would achieve its goal.

In fact, their usefulness to the community is measured and tested by the market process, which is not the case for government jobs.

True. As a result, some government jobs may be more or less useful than private sector jobs.

For instance, inspecting the water supply, building and maintaining a bridge, national defense, public health, basic R&D, etc all generally fail the market test even when they are very useful. In these cases, a government job may create more value than a private sector job.

Do we have too much or too little investment in public goods right now? This is an empirical question. However, there is nothing in economic theory that indicates that the government job always generates less value, as you imply.

CBBB writes:

Yeah the private sector does socially useful things, but it's not really hiring right now. The only option now is for the government to hire or to waste a generation of people.

Bill writes:
However, there is nothing in economic theory that indicates that the government job always generates less value, as you imply.

True. But there is much in economic theory that tells us the the probability of of a government job creating more value at any point in time is small (Arnold's point).

And across time, that probability continually diminishes. It's much easier to hit the lottery once, than it is to hit it 2 or 3 weeks in a row.

Arnold isn't saying they cannot provide more value, just that the chances of them doing so are long, as they are not subjected to consumer preference.

The examples you give are worthless, and a reflection of your personal biases. Many people could reasonably disagree with them.

Peter writes:

The real problem with Marks (2) argument is getting rid of the people later when the economy recovers. It's often why (being a fed) we hire contractors, because it's near impossible to hire a three temp federal employee. This is why I have a slew of GS nothing "make jobs for people" employee's who were hired under various "help less vantaged people get jobs" program over the years. In an office of twenty people, six of them are GS-5 admin assistants and two are GS-4 mail room clerks, all of them with over twenty years of federal service. You just can't temp or surge hire feds which is what Mark is calling for no matter what OPM says .. political and labor realities don't allow for it once they are on the payroll.

Steve Roth writes:

"pay a subsidy of $10,000 per job for five private-sector jobs than to create a single $50,000 job."

I'm amazed you don't even mention the EITC.

Greg Messick writes:

Most of us support the idea of "job creation" and that unemployment should be the first priority. However, once again, reliance on good old Uncle Sam to come up with the solutions and initiate the necessary corrective measures has failed. Yes, some progress has been made via increased government spending, decreased taxes (i.e. payroll tax breaks), and ongoing changes in monetary policies.

The reality is that there may be enough "jobs" out there now; however, these are not providing enough to support normal living expenses, let alone to provide significant amounts for discretionary spending - at the household level where it is most essential. Placing money directly in the hands of the consumer is the solution, giving them the purchasing power, and thus giving them the power to decide who fails and who continues to succeed into the future.

I do not recall agreeing to these bailouts of unconceivable amounts to support failing businesses and industries. I believe that everything has a "self-life" and some things should have been left alone to run its natural course. Yes, it was necessary to take immediate, aggressive action to stabilize the financial sector - but enough is enough.

But seriously, it has been three full years with a long foreseeable delay due to the upcoming 2012 election nonsense. Too such time has been wasted already, it is time to end the debating and set aside the politics, it is time the government steps aside and starts listening to those who actually know how to effectively run a productive business, which in turn will provide permanent, long-term jobs and true added value to the community.

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