Tuesday, May 19, 2009

The Governors Make-Work Plan and the Minimum Wage


I have been asked by a couple of readers for my take on the governors plan to temporarily employ 12,000 people who are currently unemployed. The short answer is (Grinch that I am): I am not sure I get it. Presumably many/most of the people employed by this plan will be ones that are currently getting unemployment insurance and who have time to look for work, try and get training for new marketable skills, and can cut child care costs by taking care of their children themselves. When jobs become available the best matches for each opportunity will be hired and the job market will unravel itself efficiently.

What this system creates is a system of 'winners' who will get more than the unemployment insurance benefit, but who will have less time to look for permanent jobs, may have to get additional child care and will not be available for new, better matched opportunities; and 'losers' who will get the standard unemployment insurance (until it runs out).

Why should 12,000 of the 250,000 unemployed in Oregon get lucky? What about the rest? And is this the best way to spend unemployment insurance money? I think the answers are that the system should not be altered to create winners and losers and that it is not an efficient use of unemployment insurance money. In short, this smacks of a policy completely devised for political aims not one for economic progress.

With all that said, I am not insensitive to the plight of distressed Oregon families and I understand that those that would get these jobs would be made better off. But if you are going to spend extra money, why not spend it on education and retraining so that these workers can have better job prospects int he future? Or extend unemployment insurance for folks who find themselves in long-term jobless spells? Or even increase the average payment?

And by the way, we can't escape the elephant in the room: Oregon has a relatively high minimum wage. This also creates winners and losers. We can expect that, relative to having a lower minimum wage, fewer people will be employed in Oregon, but those that are will do better. Economic estimates in the past have shown very small effects on unemployment from minimum wages, but in such a distressed economy, there are probably many people willing to work for, say, $6 and perhaps many places that would employ them at that wage. So I imagine that in times such as these the minimum wage actually bites off many more jobs than in a 'normal' economy. Is is right to deny these struggling people the right to work at this wage? I mention this because too often I think we conveniently forget about the trade-offs, especially when times are good and these trade-offs are small or virtually non-existent. But times are bad, unemployment is rampant, and this plan and the minimum wage creates distortions that make the labor market less efficient and this will likely lead to more suffering

1 comment:

FallPurple said...

If I were considering working at minimum wage, even at the current levels, I suspect I would get a better ROI in panhandling. Can someone explain to me how lowering the minimum wage changes this equation?