Friday, November 07, 2008

When is unemployment not unemployment?

It's interesting to compare these two pieces on what to count as unemployment. First Tabarrok:
So why are there multiple series on unemployment for the 1930s? The reason is that the current sampling method of estimation was not developed until 1940, thus unemployment rates prior to this time have to be estimated and this leads to some judgment calls. The primary judgment call is what do about people on work relief. The official series counts these people as unemployed.

Rauchway thinks that counting people on work-relief as unemployed is a right-wing plot. If so, it is a right-wing plot that exists to this day because people who are on workfare, the modern version of work relief, are also counted as unemployed.

Moreover, it's quite reasonable to count people on work-relief as unemployed. Notice that if we counted people on work-relief as employed then eliminating unemployment would be very easy - just require everyone on any kind of unemployment relief to lick stamps. Of course if we made this change, politicians would immediately conspire to hide as much unemployment as possible behind the fig leaf of workfare/work-relief.
But if the Government did have a large work-relief person, there would be no unemployment. If someone gets up in the morning, goes to an office building, does activity for 8 hours, collects a paycheck and goes home, that's employment whether it's part of a work-relief person or not. If we're going to stop counting people who work for the Government as employed, then the US has a 40% unemployment rate, not a 6% rate.

Compare and contrast with the Employer of Last Resort proposal from Mosler:
The U.S. Government can proceed directly to zero unemployment by offering a public service job to anyone who wants one as a supplement to the current budget. Furthermore, by fixing the wage paid under this ELR program at a level that does not disrupt existing labor markets, i.e., a wage level close to the existing minimum wage, substantive price stability can be expected.

The ELR program allows for the elimination of many existing government welfare payments for anyone not specifically targeted for exemption, as desired by the electorate. Minimum wage legislation would no longer be needed. Labor would welcome the safety net of a guaranteed job, and business would recognize the benefit of a pool of available labor it could draw from at some spread to the government wage paid to ELR employees. Additionally, the guaranteed public service job would be a counter- cyclical influence, automatically increasing government employment and spending as jobs were lost in the private sector, and decreasing government jobs and spending as the private sector expanded.

The ELR proposal also has characteristics similar to the current Federal unemployment compensation policy. There are, however, significant differences as unemployment is 1) compensation is payment for not working, 2) temporary, 3) does not cover everyone, and, 4) is less than the proposed ELR wage.
If the Government steps up as Employer of Last Resort, giving anyone a job who wants one, then involuntary unemployment -- by definition -- goes to zero. Such a program would dramatically increase the Federal Deficit, but Mosler does not care about deficits.

Tabarrok, however, did not raise deficits as his objection. His problem was that politicians would conspire to hide unemployment behind work relief, but nothing would be hidden! Work relief numbers would be public just as unemployment numbers are now! Moreover, if the price of work relief was appropriately set, it would not take skilled workers from the private sector. Mosler calls this work relief pool a "buffer stock" of workers, a buffer stock superior to unemployment (which is the current buffer stock). He is certainly correct in this. He also says that government deficit to pay this buffer stock does not matter, and people can disagree with him there.


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