- "Unemployment Benefits Aren't Stimulus" Read this Wall Street Journal Op-ed by Arthur Laffer before moving on to read/ look through Raj Chetty's slide deck below on the same topic...
- "Should Unemployment Benefits be Extended"
Needless to say, I found Chetty's argument for extending unemployment benefits to be much more compelling.
The most obvious error in Laffer's piece is:
ReplyDelete'As the chart nearby clearly shows, since the 1970s there's been a close correlation between increased unemployment benefits and an increase in the unemployment rate.'
What's striking about that chart is that unemployment benefits per unemployed person clearly *lag* the unemployment rate. Now, the first explanation that came to my mind was that governments increase benefits *in response to* increases in unemployment. But it's even simpler than that. Benefits per person equal benefits per week times unemployment duration. Suppose that recessions cause increases in the duration of unemployment for the unemployed, as well as its rate. Then after a recession, we would see first an increase in the unemployment rate, and then an increase in average benefits, exactly as in the chart - even if there was no change in benefits per person.
However you look at it, this chart doesn't support Laffer's claims. The charitable interpretation is that he just didn't think about it that hard.