Wednesday, August 4, 2010

Eurosclerosis Comes to America

Copyright, The New York Times Company

Employers now have a surprising number of job openings available, despite the persistently high unemployment rate. Public policy may be to blame.

During many recessions, the unemployment rate rises while wages and job openings fall — telltale signs that people want jobs, but that employers are not hiring. The economy, however, has not followed that pattern since late 2008.

The chart below displays unemployment and job openings since September 2008. In about a year, the unemployment rate rose to 10 percent from about 6 percent and has not changed much since then. Job openings fell through mid-2009 but have largely recovered since then.

It is not the usual pattern of recessions for the unemployment rate to lag job openings so much. As Paul Krugman explains, the two series normally move together, with the unemployment rate falling as job openings rise.

But this recession has been unique in terms of the multitude of public policies that dull incentives to work and earn income. Best known are unemployment benefits, which are paid only to people who have not yet accepted a new job. But the mortgage modification programs, begun by the Bush administration and tweaked by the Obama administration, offer mortgage forgiveness to borrowers with low incomes while offering nothing to those with high incomes.

The new home-buyer tax credit, the enhanced food-stamp program and many other programs in President Obama’s stimulus bill are much the same: people without low incomes need not apply. People accepting jobs in this economy see their various safety-net benefits reduced or eliminated.

Payments to the unemployed are compassionate, and maybe even the best government reaction to a deep recession. But previous economic research has shown that this compassion has a cost: programs like these make it more difficult for employers to fill their job openings. It is no surprise that adopting a European safety net is giving us a European unemployment problem.

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