Economics 101 re Unemployment Comp

[Velleity]

Supply, Demand, and Unemployment

http://krugman.blogs.nytimes.com/2010/03/07/supply-demand-and-unemployment/

Employment cost index



I hear through the grapevine that the usual suspects at the WSJ have put out something along the lines of “Krugman says that unemployment benefits won’t raise unemployment, but in his textbook he says they will, neener neener.” Are they really that stupid? Probably not — but they think that you, the reader, are that stupid.

But anyway, maybe this is a good time to explain the difference between determinants of the NAIRU — the minimum rate of unemployment consistent with a stable inflation rate — and the determinants of the unemployment rate at a point in time.

So: there are limits to how hot you can run the economy without inflationary problems. This is usually expressed in terms of a non-accelerating-inflation unemployment rate; yes, there are some questions about whether the concept is quite right, especially at very low inflation, but that’s another issue.

Everyone agrees that really generous unemployment benefits, by reducing the incentive to seek jobs, can raise the NAIRU; that is, set limits to how far down you can push unemployment without running into inflation problems.

But in case you haven’t noticed, that’s not the problem constraining job growth in America right now. Wage growth is declining, not rising, and so is overall inflation. A wage-price spiral looks like a distant dream.

What’s limiting employment now is lack of demand for the things workers produce. Their incentives to seek work are, for now, irrelevant. That’s why comments by the likes of Sen. Kyl are so boneheaded — anyone who thinks that high unemployment in the first quarter of 2010 has anything to do with workers getting excessively generous benefits must not get out much.

And the truth is that unemployment benefits are a good, quick, administratively easy way to increase demand, which is what we really need. So right now they have the effect of reducing unemployment.

[Velleity]

Of course the likes of Rocketman and Ivan will never understand any of this because neither of them have a rudimentary understanding of economics.

[ivanm]

Of course the likes of Rocketman and Ivan will never understand any of this because neither of them have a rudimentary understanding of economics.

What percent of unemployment pay is used to stimulate demand above and beyond what is already present? In asking this I am saying that the modest unemployment check a person receives would buy about what he normally was consuming or buying at a basis subsistence level, and he would somehow be spending that much without a check because he has mouths to feed.  So most of what he spends the unemployment check on is not really added demand, relatively speaking, and is not enough to prompt manufacturers to increase their output and to hire more workers.
 
It appears that the manufacturers are making do without hiring more permanent workers.  Perhaps they are working the existing staff more hours or are using temps to avoid the overhead associated with employing more full time workers. 

I think that unemployment bennies are a wonderful thing and I myself drew a check back in 2009 when I was laid off.  However, to think that unemployment checks give a great deal of stimulus to the economy may be fallacious. The funding for the benefits comes from employers for the most part, so aren't they simply transfer payments? Couldn't the payer be using the money for other needs?

Vel your views of economic theory are fashioned too much by your socialistic philosophy and too little on an objective application of the theory and how it fits the real world.  If you would stop politicizing things you might be a lot more interesting person to talk with.  When I took the several econ. courses the only one that was politicized was labor economics, and that was beause  the professor was a socialist.  Other teachers seldom mentioned the government role in the theories and such.

To me economics is much like psychology in that it is "A STUDY OF ECONOMIC BEHAVIOR" just as psychology is "A STUDY OF HUMAN BEHAVIOR". An economist can advocate that certain things be done by government but
he is not the government and too often his theory or recommendations are based more on assumptions and preferences rather than on economic data.  Given that, many economic forecasts or recommendations are flawed in the end, and being politically biased does not help the quality or credibility of the forecaster or advisor.

There is such a thing as cooking the books, even with economists and global warming "experts".

[lucy]

YOU PAY THE TAXES which are supposed to help pay should you retire or should you become unemployed. If you are employed by a company, usually they pick up half or so of the tab to the government. If you are self-employed, you get to pay the whole enchilada.

The government has no right to use THAT MONEY or the appropriate funds that are supposed to be set aside for these purposes for other expenditures, AND while the government DOES invest its money, one would think that at the same time some of that investment would be paying interest or dividends for the citizens who pay into the system in the first place....

something really is not right/

[johnhp]

If unemployment were steady or growing your comment would be plausible.

[ivanm]

If unemployment were steady or growing your comment would be plausible.

It is not growing but is relatively constant. 

[lucy]

It is growing.

[makesenseplease]

It is not growing but is relatively constant. 

Pick your poison, Ivanm.

http://search.yahoo.com/search?ei=utf-8&fr=slv8-yma2&p=unemployment%20continues%20to%20grow&type=

 

[johnhp]

Ivan, Lucy

In the long term both of you are wrong.  Last month the economy lost about half the jobs it expected to lose.  The decrease in the growth of unemployment is a result of the Admin's policies (though it would be better if the policies were more robust, but we know whom we have to thank for that).

[ivanm]

Pick your poison, Ivanm.

http://search.yahoo.com/search?ei=utf-8&fr=slv8-yma2&p=unemployment%20continues%20to%20grow&type=

 

I stand corrected.  However, some of those google hits were not current. 

[Velleity]

Ivan, Lucy

In the long term both of you are wrong.  Last month the economy lost about half the jobs it expected to lose.  The decrease in the growth of unemployment is a result of the Admin's policies (though it would be better if the policies were more robust, but we know whom we have to thank for that).

What these people never seem to understand is that expectations are everything. By the time you know something like the decrease in the growth of unemployment that knowledge is ancient history. Everything that is done in real time is based on expectations. People's spending, currently, is based on their confidence in their income over the next six months and beyond.

Given that fact, and it is a fact, isn't it kind of sort of important to know that the government is taking positive steps toward improvement?

Debate the efficacy of the "stimulus" itself until you're blue in the face, the effect on expectations is indisputable and the fact is that the Obama administration did exactly the right things.

[Velleity]

YOU PAY THE TAXES which are supposed to help pay should you retire or should you become unemployed. If you are employed by a company, usually they pick up half or so of the tab to the government. If you are self-employed, you get to pay the whole enchilada.

The government has no right to use THAT MONEY or the appropriate funds that are supposed to be set aside for these purposes for other expenditures, AND while the government DOES invest its money, one would think that at the same time some of that investment would be paying interest or dividends for the citizens who pay into the system in the first place....

something really is not right/

Actually the government can't do anything with the money except to put it into the general treasury.

Your views of these things is so parochial. Literally the employee pays half of the FICA and half of the medicare and the employer pays half. However the employer gets to deduct that payment, so it's not half, and the fact is that this cost is a cost of employing someone so arguably that half that the employer pays is coming out of what the employer might have paid the employee.

But what's the point of this discussion anyway? To really understand this you would have to show a more sophisticated understanding of "wealth" and "value," and economics generally, than so far you have been willing to show, and at this point I don't think you have that understanding.

[Velleity]

Krugman Follow Up

How Little They Know the World

Well, it seems that Republicans are going all in on the idea that a big reason we have high unemployment is that unemployment benefits reduce the incentive to seek work. Aside from the sheer cruelty, it’s really bad economics, but whatever.

And I found myself remembering a passage near the beginning of The Treasure of the Sierra Madre:

    Anyone who is willing to work and is serious about it will certainly find a job. Only you must not go to the man who tells you this, for he has no job to offer and doesn’t know anyone who knows of a vacancy. This is exactly the reason why he gives you such generous advice, out of brotherly love, and to demonstrate how little he knows the world.

[johnhp]

i think it is interesting that they are going to try and sell to many Americans that their wages are falling and they are underemployed and that they are unemployed because unemployment benefits are the best thing ever.

[Velleity]

i think it is interesting that they are going to try and sell to many Americans that their wages are falling and they are underemployed and that they are unemployed because unemployment benefits are the best thing ever.

That is interesting.

What happens if Republicans win big in November?