University of Chicago economist and the latest recipient of the Manhattan Institute’s Hayek Prize, Professor Casey Mulligan, has an excellent article in The Wall Street Journal explaining how policies of the last several years meant to help the poor and unemployed have made their plight worse. This has occurred by creating a perverse incentive structure that leads people to refuse opportunities to become employed. Ultimately he blames the incredibly anemic Obama recovery on these redistributionist policies. His point is captured in this example:
Helping people is valuable but not free. The more you help low-income people, the more low-income people you’ll have. The more you help unemployed people, the more unemployed people you’ll have.
That’s a cost. For example, you have people out of work who would be productive if it weren’t for the help. So there’s a trade-off: more help, less economic efficiency.
I met a recruiter—a man whose job it is to find employees for businesses and put unemployed people into new jobs—and he described the trade-off pretty well. Stacey Reece was his name, and he said that in 2009 his clients again had jobs to fill. But he ran into a hurdle he hadn’t seen before. People would apply for jobs not with the intention of accepting it, but to demonstrate to the unemployment office that they were looking for work.
As Mr. Reece described it, the applicants would use technicalities to avoid accepting a position. The applicants would take Mr. Reece through the arithmetic of forgone benefits, taxes, commuting costs and conclude that accepting a job would net them less than $2 per hour, so they’d rather stay home.
People remain unemployed longer, as Mr. Reece saw with his own eyes.
