Formal analysis of effects of government-funded 99 weeks of Xbox

In this posting from two years ago, I wondered anecdotally whether it could possibly be a good idea for the U.S. government to encourage able-bodied people to stay home and play Xbox for 99 weeks rather than work. The crux of my argument was “It seems strange to pay someone for 99 weeks and hope that somehow the employers that didn’t want them when they were fresh out of work would somehow want them after two years of idleness.”

It seems that the academic eggheads have weighed in on the same issue with some actual data. http://economix.blogs.nytimes.com/2013/01/11/why-the-unemployment-rate-is-so-high/ is by a professor at UC Berkeley and a former economist for President Clinton. She concludes that the current unemployment situation is pretty much normal except that “during the current recovery the normal relationship has broken down for the long-term unemployed — the increase in the vacancy rate has produced a smaller-than-expected decline in the long-term unemployment rate” and “Another recent study found that the likelihood that a job applicant receives a call-back for an interview significantly decreases with the duration of his or her unemployment.”  I.e., nobody wants to hire someone who has spent the past 99 weeks staying home and playing Xbox.

[The author herself is illustrative of why the U.S. is moribund. After staring at data that shows the long-term unemployment problem was pretty much created by government action she does not say "So we should be like Singapore and simply not have unemployment insurance. Then people who lose a job would be motivated to find another one quickly, even if it was not the work that they most liked to do." Instead she holds out hope for an even bigger government intervention: "... That’s what the Federal Reserve is worried about. It’s too bad that more members of Congress don’t share this concern."]

8 Comments

  1. Dan Weber

    January 11, 2013 @ 1:51 pm

    1

    It’s very well known that this is a problem of long-term unemployment. In lots of fields, someone who has been out of work for 8 weeks is less desirable than someone who has been out of work for 4 weeks. Since wages are sticky, this flips the normal way that markets self-correct.

    Anyone who said that giving them unemployment was to make them more likely to get jobs was silly. Who was saying that?

    The purpose was to mitigate suffering during an economic downturn, and also to give spending money to people who could spend it. You can have issues with that if you wish.

    (Personally, I have improved my job skills between jobs, but my field makes it very easy to stay active while not receiving a paycheck, and I even got a chance to study things that I don’t have time while working.)

  2. Tony N

    January 11, 2013 @ 2:43 pm

    2

    Anecdotally, my own experience with my friends is that collecting unemployment is awesome, and working is a real bummer. Examples:
    * Two friends in tech support lost their jobs, collected unemployment for 99 weeks, and then found a job within two weeks of it running out. I offered them both contract work while they were unemployed and they both passed on it.
    * A teacher friend lost his job, started collecting unemployment, and then took a job waiting tables–but under the table, so he’s still collecting unemployment and not paying taxes on his income.
    * Another friend is collecting unemployment but wants to become a pro portrait photographer, so he’s paying the bills with the unemployment checks while he builds a portfolio and client base.

    Right now, I have more than a dozen friends who are happily unemployed and plan to remain so as long as they keep getting checks. Probably one-third of them are working jobs under the table for extra money. All of them have some sort of work available to them, but for some of them, the job wouldn’t pay any more than unemployment insurance (especially when you factor in the need to pay for daycare).

    It’s not data, it’s anecdotes, but it’s true and it’s common, and it seems like people don’t like to admit that many are voluntarily and happily unemployed.

    I don’t mean to imply that I think the world overall would be a better place with shorter or less unemployment insurance. I’m not nearly smart enough to anticipate the impact of changing our current policies, but I can see how it’s impacted individuals around me.

  3. philg

    January 11, 2013 @ 3:52 pm

    3

    Dan: If you want to use taxpayer dollars to “mitigate suffering during an economic downturn”, why would you send handouts to people who are able-bodied and who were recently working? Why wouldn’t you send the handouts to poor people? Or disabled people? Or those who are either too young or too old to work? Mother Teresa did not work among the “unemployed”. She worked among the “poor”. A program that involves taxing a middle-income worker to send checks to a recently employed worker married to a plastic surgeon does not “mitigate suffering” in any traditional sense.

    You want to “give spending money to people who could spend it”? Why couldn’t a poor or disabled person spend money if you gave it them? What’s special about a person who recently had a job? Why not give the money to teenagers if you want it spent? Teenagers are not famous for fiscal prudence or saving.

  4. philg

    January 11, 2013 @ 3:59 pm

    4

    Tony: Your anecdotes are pretty much the same as mine. In 2009 I wrote about a woman who had collected 12 months of unemployment checks after two years in the workforce (see http://blogs.law.harvard.edu/philg/2009/11/16/unemployment-benefits-extensions-are-extending-the-recession/ ). What did she end up doing? She collected all 99 weeks (to supplement her husband’s solid middle-income job) and then found a job immediately.

    [Looking back at the postings about this woman I saw a comment from 2010 that I wrote that rings sort of true now: "My personal view is that the best prediction about the future of the American labor market is that it will be similar to today’s labor market. Without a crystal ball, there is no reason to believe that it will be worse or better. Therefore it doesn’t help people to give them two years of unemployment payments. There won’t be more or better jobs in two years than there are now." I think that turned out to be true. In the 2.5 years since I wrote that paragraph there are a few more jobs but only about what you'd expect due to population growth.]

  5. Dan Weber

    January 11, 2013 @ 4:50 pm

    5

    The question of how to best disperse money to stimulate the economy is not purely an economic one, but also a political one. For better or worse, “giving money to people who were very recently working” is a much easier political sell than “give money to the poor, who may not have ever had a job,” even if Milton Friedman is completely right about just needing a negative income tax so we have a much more efficient welfare state.

    My personal anecdotes match Tony’s personal anecdotes, but the data at the time showed lots of people staying unemployed well past the expiration of their normal unemployment benefits, before the benefit window got extended. If they were going to get a job as soon as their benefits ran out, they would have. Like Tony readily admitted, we can’t assume our anecdotes are what’s happening in the whole economy.

    (I oughtn’t need to say this, but I’m not saying that we should extend unemployment for 300 weeks, or always have 99 weeks of unemployment, or pay the unemployed 3x their working salaries, or any other absurdio scenario someone might say I’m promoting.)

  6. philg

    January 11, 2013 @ 4:55 pm

    6

    Dan: If in fact Tony’s anecdotes, your anecdotes, and my anecdotes all agree and contradict the data, doesn’t that make you suspect the data? We had good data from bright people showing that subprime mortgages were solid investments. We had anecdotes that people with $40,000 per year incomes were getting mortgages on $750,000 houses. The anecdotes turned out to be more useful than the “data”.

  7. Alexey

    January 12, 2013 @ 11:44 am

    7

    Phil I have similar anecdote of couple folks I know who sat on unemployment for 1 year and found job in 2 weeks after they run out. Even better one of them went and did all kind of medical procedures that where “too costly” under his pervious employee health plan. Our “leaders” don’t understand simple fact that all that humans do come from ideas which stimulated by external environment. No wonder many active people have such gloomy feelings about feature of US. Environment that surrounds us shows that you can
    Iive life like lazy weed plant, why bother. In fact the ones who bothered often get beaten and shamed. And leadership only encorougas that behavior and comes up with crazy studies. I think Egyptians build piramids for a reason, something that Obama tries to do with green energy but so far he is not succeeding in that, except making some “ventures” hugely “successful” with taxpayers money. Just look at “vivint” solar in Massachusetts. Btw can be good idea for your investment, short term :)

  8. JimD

    January 22, 2013 @ 2:08 pm

    8

    The “quality” of collecting unemployment for the educated, especially those with graduate STEM skills varies a lot from state to state. In California, you sign up once and sit back while (some what lower) checks roll in, with no requirement that you seek work, etc. In the mean time, if you’re entrepreneurial, you can work on obtaining contracts for your company from a federal agency, all on the up and up.

    In another Midwest state you’re required to jump through some very ineffectual requirements for finding a job that are supposed to suit every one, from the high school drop out to the high-end job seeker, except for this: they haven’t seriously addressed the filtering of resumes performed by computers instead of HR people. We poor job seekers used to at least get the chance to be interviewed by an HR person. You have to log two interviews a week to collect unemployment. To get those interviews, you may have squandering time to reach for positions that really aren’t of interest: part-time, without benefits, etc.

    Our state would do well to consider contracting out _part_ of the unemployment
    to a for-profit firm, as has been tried in other parts of the country. Cf. an article in the current issue of City Journal.

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