Monday, August 3, 2009

Malkin Is Correct About Unemployment Benefits

Michelle Malkin on This Week with George in addition to being slightly snotty was correct about the incentives of unemployment benefits.

There is a fair amount of research, including the Katz paper Malkin mentions, that show the escape rate of unemployment insurance gets closer to 100% as the recipient gets nearer to benefit exhaustion. At the point of exhaustion the recipients expected utility will decrease. Therefore, an unemployed person at the end of benefits will likely reduce their reservation wage and accept a position that they would have passed on earlier in their benefits period.

The incentive to accept a job depends on at least two factors for the insurance recipient. First, the availability of jobs that pay more than the current unemployment benefit. Second, the number of weeks available from unemployment programs.

The last few weeks of benefits will likely be the time when the unemployed commit more time to finding a job. Because at the end of benefits the search costs for the unemployed became too high.

There is an intrinsic benefit to allowing time for job search that creates quality job matching. Placing the right person to the right job increases productivity. But I am not sure that should be the priority now. So maybe we should not extend the unemployment benefits?

I did not think I would ever need to recall my thesis research. Title: "Exploring The Canada United States Unemployment Gap In Regards To Repetitive Use And The Duration of Unemployment Spells" Sexy title?
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