Supply, Demand, and Unemployment Benefits

[phantom power]

Our Galtian overlords are not interested in "solving economic problems," they're animated by a desire to act out Calvinist morality plays where the poor are punished because they must be inferior. Because they're poor.

Ben Casselman points out that we’ve had a sort of natural experiment in the alleged effects of unemployment benefits in reducing employment. Extended benefits were cancelled at the beginning of this year; have the long-term unemployed shown any tendency to find jobs faster? And the answer is no.

Let me parse this a bit more, and ask, how was it, exactly, that reduced benefits were supposed to encourage employment in the first place?

Making the unemployed miserable arguably increases labor supply, as workers become less choosy and more willing to take whatever job they can find. But the US labor market in 2014 isn’t constrained by supply, it’s constrained by demand: given what firms can sell, they have no need for as many hours of work as workers are willing to give.

So make the long-term unemployed more desperate; so what? They can’t do anything to increase the amount of work demanded, and in fact their reduced purchasing power reduces labor demand.

http://krugman.blogs.nytimes.com/2014/04/15/supply-demand-and-unemployment-benefits/