Paul Ryan Has It Right: Lower Benefits, Higher Jobs

Friday, 08 Aug 2014 05:48 PM

By Larry Kudlow

Share:
  Comment  |
   Contact Us  |
  Print  
|  A   A  
  Copy Shortlink
Neel Kashkari, the Republican candidate for governor of California, just recounted in The Wall Street Journal his week on the streets of Fresno posing as a homeless man looking for work. At the end of his op-ed, Kashkari lamented that he didn't need a higher minimum wage, paid sick leave, or a healthcare plan. What he needed was a job.

And Kashkari made the important point that all those government benefits, especially extended unemployment benefits, are work disincentives that may actually block job creation.

To be sure, there are signs that employment in the country is rising more rapidly these days. The February to July period was the first six-month stretch of consistent employment gains above 200,000 since 1997. And that came without any new programs from the federal government to "create jobs." Even more surprising, those gains overlapped a quarter in which GDP actually contracted.

Editor's Note: 200 Free Benefits Most Seniors Fail to Use

So what drove the increase? University of Chicago professor Casey Mulligan put his finger on it: "Major subsidies and regulations intended to help the poor and unemployed . . . reduce incentives for people to work and for businesses to hire." And guess what happened when federal emergency job assistance ended? Job increases were the best in 17 years.

Economists tend to focus primarily on the demand for labor in analyzing employment trends, giving short shrift to the supply of labor. Indeed, given the harsh winter weather and first-quarter drop in real GDP, it's hard to believe that the demand for labor increased significantly in February and March. But is there anything about the supply of labor that could explain the improvement in employment?

Well, there is a very good reason to believe that extending unemployment benefits to a maximum of 99 weeks in recent years held back the labor supply. Rather than taking a job, extended unemployment benefits made it easier for potential workers to lengthen their job searches, hold out for higher-wage positions, or just choose not to work.

However, supply-side theory would also suggest that as extended unemployment benefits expired at the end of last year — despite major handwringing from the president and Democratic leaders — workers would go back to work. And they did. Technically, this would be visible as an outward expansion of the supply-of-labor curve. Without the crutch of continued unemployment benefits, workers are willing to take jobs, even at a somewhat lower wage. They know that work is its own virtue.

kudlowchartaug2014.JPG

Now, if the demand for labor is steady, what would be the implications of an increased labor supply? Here, as the supply curve shifts, economic analysis would suggest that wages might fall somewhat, but the level of employment would increase.

And guess what? Since the month after extended unemployment benefits expired, the number of employed workers has increased, the employment-to-population ratio has increased (59 percent in July versus 58.8 percent in February), and the civilian labor force has increased (to 156 million in July from 155.7 million in February).

Average hourly earnings growth remains sluggish at only 0.2 percent per month over the last six months, but at least wages have risen modestly while employment gains have increased markedly.

The lesson here is that if you pay people not to work, you get less work. In fact, this is a universal problem. Record-breaking increases in recent years in food stamps, disability benefits, and various forms of welfare have reduced incentives to work and earn. But it's clear over the first half of the year that lower unemployment subsidies have generated higher employment, which helps explain why employment growth accelerated and the unemployment rate fell another half percentage point when overall GDP growth slowed to a near 1 percent pace.

Congressman Paul Ryan has the right idea to solve the wrong-way incentives generated by big government. He would block-grant all the transfer-assistance programs and send them back to the states. Importantly, Ryan wants to restore lower eligibility requirements and reduce benefit-assistance time limits. Plus, he would expand the earned-income tax credit to ease the transition from welfare to work without prohibitive increases in marginal tax rates.

Policymakers should listen to Ryan. And they should carefully observe what's been happening with lower government employment assistance and higher jobs growth.

As Neel Kashkari pointed out, many in our country just want to work. They just need a job, which is the greatest form of welfare. But for a change, let's get policies that actually increase the incentives to work and earn. The whole country will benefit.

Editor's Note: 200 Free Benefits Most Seniors Fail to Use

-- Larry Kudlow CNBC’s Senior Correspondent. Robert Sinche is a long-time right-thinking Wall Street economist.

To find out more about Lawrence Kudlow and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate web page at www.creators.com.

© Creators Syndicate Inc.

Share:
  Comment  |
   Contact Us  |
  Print  
  Copy Shortlink
Around the Web
Join the Newsmax Community
Please review Community Guidelines before posting a comment.
>> Register to share your comments with the community.
>> Login if you are already a member.
blog comments powered by Disqus
 
Email:
Country
Zip Code:
Privacy: We never share your email.
 
Hot Topics
Follow Newsmax
Like us
on Facebook
Follow us
on Twitter
Add us
on Google Plus
Around the Web
You May Also Like

Here's Why Most Unemployed Americans Don't Get Benefits

Saturday, 22 Nov 2014 10:35 AM

Even though the U.S. job market is gaining strength, there are still a lot of unemployed Americans. Yet only a fraction  . . .

Kudlow: Obama's Big Mistake Is Ignoring High-Skilled Visa Problem

Friday, 21 Nov 2014 22:08 PM

Obama’s executive actions not only usurp powers that are not his, they don’t really solve key immigration problems. . . .

Furchtgott-Roth: Obama's Immigration Edict Is Windfall for Wal-Mart

Friday, 21 Nov 2014 17:47 PM

President Barack Obama's immigration edict is likely to enrich Wal-Mart because the previously undocumented millions wou . . .

Most Commented
Top Stories

Newsmax, Moneynews, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, NewsmaxWorld, NewsmaxHealth, are trademarks of Newsmax Media, Inc.

 
NEWSMAX.COM
America's News Page
©  Newsmax Media, Inc.
All Rights Reserved