Even crummy jobs are often better than unemployment

The first best solution for our unemployment problem is easier money.  The second best solution is not extended unemployment benefits, however, it is job subsidies:

The average duration of unemployment continues to break records, after all, and studies have shown that the longer people are out of work, the less employable they become.

“I never, ever, ever thought I’d end up in an art gallery,” said Tremaine Edwards, 35, a former computer technician who had been unemployed for two years before he was hired in May by Gallery Guichard, a private gallery in Chicago. Mr. Guichard now earns $10 an hour, financed by the government, through the Put Illinois to Work program, to maintain the company’s Web site, curate exhibits and run gallery events.

He has also become the gallery’s star salesman, selling five paintings during the most recent gallery opening despite no background in fine arts or sales.

“I feel like if I knew I could have done this 15 years ago, I would have,” he said, grateful for the opportunity to escape cubicle life. “As long as I keep selling like this, I think I’ll be fine, no matter what happens with Put Illinois to Work.”

Proponents of these national job subsidies, initially financed with $5 billion of stimulus money, say it is better to pay people for working in real jobs than to pay them jobless benefits for staying idle.

Placing workers in the private sector is also more promising than giving them make-work government jobs, they say, because market forces can be harnessed to figure out where people like Mr. Edwards should invest their skills for the long run.

I don’t know anything about the effectiveness of this particular job subsidy, but there are definitely some subsidy ideas that would be preferable to unemployment insurance extensions.  One such idea is lower payroll taxes.



13 Responses to “Even crummy jobs are often better than unemployment”

  1. Gravatar of Lorenzo from Oz Lorenzo from Oz
    29. July 2010 at 11:55

    I have a real “this is where I came in” feeling. My first job was working in the Commonwealth Employment Service advising people on their job prospects. (Never had a job in my life before: welcome to government labour allocation.) Then I worked in labour market program administration and analysis. Then, after a stint in administering education consultancies, worked in labour market analysis, then moved to providing statistical advice to members of the Australian Parliament and their staff (mainly on national accounts, but labour statistics came a close second). Later, I became active in a labour market policy advocacy organisation. So, arguments over causes of unemployment, nature of unemployment, appropriate policy responses were part of my life for years.

    In the end, Australia found that the only real solutions were sustained economic growth and removing barriers to employment.

    Long term unemployment is itself a barrier, since employers look at whether other employers have been willing to take a risk on you or not: being unemployed has a (negative) signalling effect that works stronger the longer someone has been unemployed. (The best place to get another job from is being in a job.) The greater employer’s need for staff, the less alternatives workers they have, the less that signalling effect operates.

    Job subsidies is the state paying for “lower bids” to work when it otherwise makes such lower bids illegal. But if it is what governments are willing to do, then it is better than nothing since it does counteract the negative signalling.

  2. Gravatar of Ted Ted
    29. July 2010 at 12:58

    Sumner, can we really cut payroll taxes safely with our Federal Reserve?

    Payroll tax reductions usually are expansionary, but they also impose deflationary pressure. Payroll tax cuts can impose deflationary pressure by causing real wages to fall and so producers can provide more stuff at lower prices. So, if our Fed supposedly follows a ‘Taylor Principle’, like they claim, this should pose no problem. The nominal interest rate falls by more than one-for-one and so the real rate falls and inflation is kept stable, while output expands (I’m using interest-rate / inflation terminology since that’s how our Fed behaves currently, even though I’m not a huge fan of it like you).

    But what about a Fed that is mindlessly sure that zero nominal interest rates just bind their hands? It seems our Fed would just let deflationary expectations set in, which means a higher real rate and thus causes an output contraction.

    Maybe I’m wrong about something and my logic is muddled here, but I think unless the Federal Reserve accommodates a payroll tax cut you could be in even worse trouble.

  3. Gravatar of scott sumner scott sumner
    29. July 2010 at 17:18

    Lorenzo, Thanks for that perspective, I agree.

    Ted, I discussed that about a week ago in another post. The Fed probably has a zero lower bound on inflation, indeed they are already thinking of moving. This means that lower nominal wages translate into lower real wages.

  4. Gravatar of JL JL
    30. July 2010 at 04:07

    Or, high payroll ‘taxes’, of which most money is deposited in forced savings accounts.

    E.g. a 40% payroll ‘tax’ rate. Most of which is deposited in the savings account, so that most people pay little or no real tax. Above median income part of the ‘tax’ would be actual tax.
    In hard times, whether unemployment or underemployment, people can withdraw money from the savings accounts to make up for part of the lost income.

    Because its their own retirement money, they have every incentive to use as little as possible, and find the best paying job as soon as possible.

    Done properly, the vast majority of people would quickly have a years income in those accounts. Parents could help their adolescent children (allow withdrawals for immediate family), and let people inherit the accounts tax-free.

    The remaining poor could be helped with subsidized jobs and private charity.

  5. Gravatar of ssumner ssumner
    30. July 2010 at 06:26

    JL, I’ve advocated the same policy on this blog.

  6. Gravatar of JL JL
    30. July 2010 at 09:14

    I know you have. You have also said that you would prefer writing about taxes than monetary policy.

    Much as I like your MP writings, indeed that is what originally drew me to your site, I hope you find the time to expound your tax policy ideas.

    (Perhaps if the Fed would get their act together…)

  7. Gravatar of Chris T Chris T
    30. July 2010 at 10:23

    What if we created something of a jobs program for people who have been on unemployment for an extended period of time? ie: To continue receiving unemployment, you have to provide ten hours a week doing some specified job (litter patrol, painting over graffiti, limited improvement projects, etc.).

    This would provide people with a recent job track record (although it won’t help skills atrophy), get something useful done, and help maintain people’s sense of self worth (doing nothing useful sucks for most people).

  8. Gravatar of JL JL
    30. July 2010 at 10:42


    Why wait till people have been unemployed for an extended period of time?
    Why not start immediately?
    And why not apply the logic to everyone on welfare?

    (Forced) savings would be great, but for people without savings:

    You get a decent, but minimal, wage, but you need to work 10 hours a week in some unappealing job.
    Not as unappealing as the poor houses of the 19th century, but things like litter patrol, or zebra crossing guard.

  9. Gravatar of Doc Merlin Doc Merlin
    30. July 2010 at 11:22

    @JL, Chris

    It is a terrible idea, because it screws up the demand and supply and ends up prolonging the recalculation involved in recovery from a recession. Instead of someone working for someone that is willing to pay them for what they are doing, you take from one person and give a make-work job to someone else. The net result is a loss for the economy as a whole, as explained by the broken window fallacy.

    This not only slows economic recovery, it prevents good economic decisions from being made and distorts economic signals. That results in further adverse economic recalculation. This sort of thinking comes from excessively aggregating in economics, and not paying enough attention to the microeconomics.

  10. Gravatar of Doc Merlin Doc Merlin
    30. July 2010 at 11:23

    ‘One such idea is lower payroll taxes.’

    A much cheaper method would be to drop minimum wage and allow companies to not pay health benefits for full time workers.

  11. Gravatar of Chris T Chris T
    30. July 2010 at 11:35

    “Instead of someone working for someone that is willing to pay them for what they are doing, you take from one person and give a make-work job to someone else.”

    We’re doing that already with unemployment insurance. Since UI isn’t going away, why don’t we do something more useful with it? There are plenty of low skill tasks that most would define as useful that the private market doesn’t address (ie: litter patrol). We have a large amount of idle labor that’s getting paid anyway, might as well have them do something for it. Being forced to do jobs they don’t want to do might even encourage some to try harder.

  12. Gravatar of JL JL
    30. July 2010 at 14:25

    Ditto what Chris said.

    As stated, I favor forced savings accounts.
    But if we’re gonna have publicly funded welfare and unemployment, and we should, lets have the best system.

    If the Fed is gonna cause another depression (and it looks like they might), then the private market will not be able to employ everyone, at least not at wages high enough to afford basic necessities like nutritious food.

    Remember Florence Owens Thompson and others like her, there was hunger and malnutrition:

    “Seven hungry children. Father is native Californian. Destitute in pea pickers’ camp … because of failure of the early pea crop. These people had just sold their tires to buy food.”

    “I did not ask her name or her history. She told me her age, that she was 32. She said that they had been living on frozen vegetables from the surrounding fields and birds that the children killed. She had just sold the tires from her car to buy food.”

    Having some form of welfare and unemployment benefits mandated by law is essential to hold government accountable:
    If they cause another depression through their incompetence, then they’ll have to borrow so much money to pay welfare and UI, and they’ll lose so much tax revenue, which will force them to inflate, thereby curing the depression sooner rather than later.

  13. Gravatar of scott sumner scott sumner
    31. July 2010 at 07:11

    Jl, I’ll get around to taxes eventually, but monetary policy looks like it will be dominating the news for a while.

    Chris, I’d rather spend the money subsidizing private sector jobs.

    Doc Merlin, I agree on both the need for recalculation, and dropping the minimum wage as being a great idea.

Leave a Reply