Everyone knows that Barack Obama and his fellow Democrats love to help people in need. The proof? They are engaged in an intense effort to give them benefits like longer periods of unemployment insurance and higher minimum wages.
But are these benefits really that wonderful?
Michael Tanner doesn’t think so. He thinks they constitute a “war on the poor”. And Tanner is a pretty smart guy – a Senior Fellow at the Cato institute, among other things. In this connection, he has written an article for nationalreview.com, which challenges both policies. Here are a few excerpts:
Labor economists may disagree on the extent to which unemployment benefits increase or extend spells of unemployment, but the fact that they increase the duration of unemployment and/or unemployment levels is not especially controversial. As Martin Feldstein and Daniel Altman have pointed out, “the most obvious and most thoroughly researched effect of the existing UI systems on unemployment is the increase in the duration of the unemployment spells.”
In fact, even Paul Krugman, in the days when he was an actual economist rather than a partisan polemicist, wrote in his economics textbook:
Public policy designed to help workers who lose their jobs can lead to structural unemployment as an unintended side effect. . . . In other countries, particularly in Europe, benefits are more generous and last longer. The drawback to this generosity is that it reduces a worker’s incentive to quickly find a new job. Generous unemployment benefits in some European countries are widely believed to be one of the main causes of “Eurosclerosis,” the persistent high unemployment that affects a number of European countries.
It’s not hard to understand why. Incentives matter. Workers are less likely to look for work or accept less than ideal jobs as long as they are protected from the full consequences of being unemployed.
The second part of this one-two punch against employment is an increase in the minimum wage. Again, the overwhelming consensus among economists is that an increase in the minimum wage reduces available employment. In fairness, that consensus is not unanimous: Some studies, notably one by Princeton’s Alan Krueger and Berkeley’s David Card, suggest that at least small increases in the minimum wage have little or no impact on employment. But other economists have criticized the methodology of that study, and a comprehensive review of more than 100 papers on the minimum wage, by David Neumark and William Wascher for the National Bureau of Economic Research, found that 85 percent of them showed negative employment effects.
Given the current level of the minimum wage, the result of a small increase probably would not be catastrophic.
But it is also important to understand that an increase in the minimum wage would not be taking place in isolation. Many businesses are already having to absorb a de facto increase in the minimum wage because of Obamacare. In 2015, businesses with more than 50 employees will have to provide health insurance to their workers or pay a $2,000-3,000 penalty.
Increasing the minimum wage on top of this would almost certainly have a significant impact on employment.
Is Michael Tanner right about unemployment insurance and the minimum wage? Do they constitute a “war on the poor”? Well, he makes some very valid, very well referenced points. But, then again, a lot of economists disagree. And they make some pretty valid points as well…one of which is that both extended unemployment insurance and higher minimum wages put money in people’s hands which then is spent on goods and services, thus benefitting the economy.
Who has it right – or more exactly, since both sides make valid points, who has it more right?
This is an extremely important question – especially given that, according to a number of recent articles, Democrats will be using these two issues as their main thrust in the 2014 mid-term election campaign (you didn’t really believe Debbie Wasserman Schultz when she said they’d be running on ObamaCare, did you?).
If they do, Democrats’ path to success will be to sell voters that they are on the right side of these two issues in a way that will somehow overcome the ObamaCare debacle.
If they can’t accomplish that, November 3, 2014 is going to be a very, very long day for them.