“The second way government assistance programs contribute to long-term unemployment is by providing an incentive, and the means, not to work. Each unemployed person has a ‘reservation wage’—the minimum wage he or she insists on getting before accepting a job. Unemployment insurance and other social assistance programs increase [the] reservation wage, causing an unemployed person to remain unemployed longer.”
From the Wall Street Journal:
Any guess who wrote that? Milton Friedman, perhaps. Simon Legree? Sorry.
Full credit goes to Lawrence H. Summers, the current White House economic adviser, who wrote those sensible words in his chapter on “Unemployment” in the Concise Encyclopedia of Economics, first published in 1999.
Mr. Summers should give a tutorial to the U.S. Senate, which is debating whether to extend unemployment benefits for the fourth time since the recession began in early 2008. The bill pushed by Democrats would extend jobless payments to 99 weeks, or nearly two full years, at a cost of between $7 billion and $10 billion. As Mr. Summers suggests, rarely has there been a clearer case of false policy compassion.
Here’s the last line of the WSJ piece:
If Republicans were really cynical, they’d let the new benefits pass and run against the higher jobless rate in the fall. In any case, no one should be surprised that when you subsidize people for not working, more people will choose not to work.
Oh, but extending unemployment benefits is the compassionate thing to do!
Of course, as Dennis Prager said on his show the other day, “People don’t naturally want to work, they naturally want to be lazy. And if you give them things for free, they will stay lazy.”
That’s exactly right.