Tuesday, October 22, 2013

When you pay people to be unemployed, ...

...you get more unemployment.  Or so says a new paper from NBER.  What is interesting is the mechanism through which this works:

Everything else equal, extending unemployment benefits exerts an upward pressure on the  equilibrium wage. This lowers the profits employers receive from filled jobs, leading to a decline  in vacancy creation. Lower vacancies imply a lower job finding rate for workers, which  leads to an increase in unemployment.

This can understood as a movement up the demand curve (as the price of labor increases, quantity demanded for labor falls).

HT:  Greg Mankiw


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  2. Well done,Nice sharing.Really great post.It,s extremely good and very helpful for me.

  3. When I lived in Los Angeles, several people I knew in the film/tv industry took unemployment after their high-paying union jobs ended while they worked on a low-paying non-union reality tv project. They were taking unemployment while they were employed due to a loophole in the law. They had an opportunity to get paid for being technically unemployed, so they took it. Can't blame them, but it explains why less union film is available compared to reality tv work.