Monday, August 30, 2010

If you pay people to be unemployed,

... you get more unemployment. Robert Barro estimates that the unemployment rate would now be at 6.8%, instead of 9.5%, if jobless benefits hadn't been extended to 99 weeks.
The unemployment-insurance program involves a balance between compassion—providing for persons temporarily without work—and efficiency. The loss in efficiency results partly because the program subsidizes unemployment, causing insufficient job-search, job-acceptance and levels of employment. A further inefficiency concerns the distortions from the increases in taxes required to pay for the program.

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