I think that there’s a kernel of truth in John Goodman’s op-ed at Forbes on the ways in which policies intended to help people who don’t have jobs may actually encourage them to stop looking:
A new book by University of Chicago economist Casey Mulligan explains that through a major expansion of the welfare state we are paying people not to work:
[I]n the matter of a few quarters of 2008 and 2009, new federal and state laws greatly enhanced the help given to the poor and unemployed — from expansion of food-stamp eligibility to enlargement of food-stamp benefits to payment of unemployment bonuses — sharply eroding (and, in some cases, fully eliminating) the incentives for workers to seek and retain jobs, and for employers to create jobs or avoid layoffs.
Mulligan gives the example of a two earner couple — each earning $600 a week. After the wife gets laid off she obtains a new job offer, paying $500 a week. But after deducting taxes and work related expenses her take home pay would be $257. Since untaxed unemployment benefits total $289, clearly she is better off not working.
All in all, Mulligan estimates that about half the precipitous 2007-2011 decline in the labor-force-participation rate and in hours worked can be blamed on easier eligibility rules for unemployment insurance, food stamps and housing aid.
I think that I would couch it differently: the jobs that are on offer don’t pay enough. Note, too, that the claim is that half the difference in labor force participation rates are due to policy rather than half the difference in unemployment rates.
He also cites the example of employers’ response to Obamacare of substituting part-time workers for full-time.
Economics is neither physics nor mathematics nor accounting although it may be informed by them. It is a science of human behavior and the sad reality is that humans respond to incentives and changes in behavior in response to incentives will inevitably be faster than compensatory changes in policy. Regulatory arbitrage, financial engineering that exploits the difference between regulatory policy and economic substance to avoid regulation or make money, is real and inevitable. The provisions in healthcare reform requiring employers to provide healthcare insurance to full-time employees or pay a fine has had the unexpected but foreseeable effect of reducing the number of full-time jobs which, I presume, will in turn cause the cost of the program to balloon past the estimates made when the plan was enacted.
I think that the estimate of the effect of policies intended to help the unemployed cited above is high. However, I do believe that the decline in labor force participation rate and the increase in the unemployment rate are the consequences of policy. Just not those policies. At least not those policies alone.