The Congressional Budget Office recently updated some charts in a 2012 report. I found the recommendations from 2012 interesting in that the policies of the Administration are either counter to the CBOs recommendations or no action has been taken on the recommendations.
Of special note is the new requirement for employers with more than 50 employees to provide health insurance. There aren’t many employment related costs that add more to the marginal cost of adding employees. For example, Walmart recently announced that because of costs it was terminating health insurance for many part-time workers. Other retailers have made similar moves.
Politicians seem to forget there are consequences to their policies, sometimes counterproductive consequences. Extending unemployment benefits alone may appear compassionate, but it does little to solve the unemployment problem. Likewise, mandating health insurance expands coverage to some extent, but raises costs for some employers substantially and discourages hiring especially when marginally necessary. Other mandates imposed on employers raise their costs and shift more costs to workers, thereby limiting the value of any raise they may receive. You just can have it both ways. Something has to give.
Understanding and Responding to Persistently High Unemployment
February 16, 2012
The United States is Experiencing the Longest Stretch of High Unemployment Since the Great Depression
Slack demand for goods and services is the primary reason for the persistently high levels of unemployment observed today.
When demand ultimately picks up, structural factors—such as mismatches between employers’ needs and workers’ skills and locations, the erosion of unemployed workers’ skills, and the stigma of being unemployed—may continue to keep unemployment higher than normal.
Some Policies Could Increase Demand for Workers
In analysis of a number of tax and spending policies designed to increase output and employment in 2012 and 2013, CBO found the largest increases in employment per dollar of budgetary cost would be produced by:
Reducing the marginal cost to businesses of adding employees and
Targeting people most likely to spend the additional income (generally, people with lower income).
Other Policies Could Also Reduce Unemployment
Lawmakers could aim to reduce unemployment by:
Improving workers’ skills, Modifying the unemployment insurance program, or Facilitating transitions to work.
Extending the duration of unemployment insurance benefits; [Note 1]
Awarding reemployment bonuses to people who find a job quickly;
Providing personal reemployment accounts with funds for people to purchase services that help them find a job;
Offering wage insurance payments to people who accept a job that pays less than their previous job;
Using UI benefits to temporarily place the unemployed in jobs with private-sector employers;
Supplementing the earnings of workers who, instead of being laid off, are offered reduced hours (commonly referred to as short-time compensation, or STC); and
Targeting more services to people projected to have difficulty finding a job.
[Note 1] Extending Unemployment Insurance Benefits. Emergency benefits for people unemployed more than 26 weeks will expire beginning in March 2012. A policy that extended those benefits would increase demand for goods and services, but it would also tend to discourage some people from taking jobs and thereby losing their benefits. Hence, it would slow the matching of some people to jobs and thus cause further erosion in the skills of some people with long spells of unemployment. Such a policy would cause some jobless workers to choose to remain in the labor force to receive benefits, perhaps turning down a job they consider unsuitable (thus tending to increase unemployment). But it would also result in some other jobless workers taking those jobs and, by boosting demand for goods and services, increase overall employment (thus tending to reduce unemployment). Because of those and other factors discussed above, extending unemployment insurance benefits, on net, has boosted employment, but its net effect on unemployment is unclear. Unlike the other policies considered in this section, a large-scale extension of benefits could be implemented quickly.