Do Stingy Benefits Matter?

Benefits2No question but what America’s labor market really boomed in 2014. In fact there were 3 million more people in work than a year earlier. According to a recent study reported in The Economist, the ratio of job seekers to actual job openings fell “from a peak of seven to one in 2009 to two to one in November 2014.” Why is this? Or, What caused this?

In a fascinating piece of research from the National Bureau of Economic Research, the failure of congress to reauthorize those benefit extensions that were introduced during the Great Recession evidently impacted the unemployed significantly. On the one hand 1.8 million jobs were created due to the benefit cut. And almost 1 million of those jobs were filled by workers from out of the labor force who would not have participated in the labor market had benefit extensions been reauthorized.

In short, it can be said that the job market is hot because of a cold-hearted Republican reform.

In the new paper Marcus Hagedorn, et al, look at over 1,000 counties that border each other but belong to different states. When counties are so close together, they assume, their economies will be pretty similar. Transport, climate and skills will not differ much (that’s an important conclusion). But the benefits could have been very different. In December 2013, for instance, people in Fairfax County, Virginia made do with 40 weeks of benefits; people in those in nearby Montgomery County, Maryland could get 63. Since the reform limited benefits to 26 weeks in almost all states, it hit Montgomery County harder.

Here’s the conclusion: Employment growth in 2014 was higher in counties that saw bigger declines in the duration of benefits. Overall, the study authors estimate that the 1.8 million extra jobs (about 2/3 of the total) suggests that the Republicans were right–up to a point.

Interpretive problem: Only a minority of the new jobs were filled by people moving off unemployment benefit. Some 1 million were taken by people who were previously not in the labor force. That may be because without benefits to rely on, workers were prepared to toil for less. Employers created more jobs to take advantage of lower wages. With vacancy notices popping up everywhere, more people who had given up looking for work decided to try again.

Very few people, including congressmen, predicted these results. The Economist (that bastion of economic and capitalistic writers) stated clearly that there is still plenty of evidence that making unemployment benefits too stingy is a bad idea, especially when an economy hits the skids. If people feel forced to take the first job that comes their way, they are unlikely to pick the one in which they are most productive. But when the labor market is improving, cutting them may give it an extra spurt.

A caveat
Though unemployment has gone down, real wages have not budged since 2007. Indeed, the whole century has been tough on wages so far. These days nearly all the benefits go to people at the top of the income ladder. Wages grew in the 1950s for a number of reasons: norms of fairness and internal equity were important, norms emphasized the “living” or “family” wage, unions and labor movements emphasized the idea that everyone should be paid enough to live on, business leaders embraced those norms, and companies didn’t have to compete with foreign workers.

As James Surowieki has written: The fact that the benefits of economic growth in the postwar era were widely shared had a lot to do with the assumption that companies were responsible not only to their shareholders but also to their workers. That’s why someone like Peter Drucker, the dean of management theorists, could argue that no company’s C.E.O. should be paid more than twenty times what its average employee earned.

Poor employee wages aren’t because companies aren’t making much. Corporate America has done just fine for the past five years. So have execs and shareholders. But company norms today emphasize paying workers as little as possible and absolutely no more than that. Perhaps the current preoccupation with inequality and the shrinking middle class can finally reach the executive suite.

For Lefties and other political thinkers
If my background and commitments were only political, I’d find this stingy benefits more than a little frustrating. LIke some of my Democratic friends and crazies, I’d want to reject the science out of hand.

Fortunately, I’ve also got a fairly thorough theological background. LIke that so-called “RINO (Republican in name only),” David Brooks, I inevitably want to turn to Reinhold Niebuhr, that brilliant public and theologically informed intellectual of the twentieth century. Niebuhr was not only a brilliant Congregationalist theologian, he was also a political writer and fascinated by human nature and human society.

Niebuhr was profoundly interested in human nature and history–and he was personally involved in the middle of human experience. As a pastor in Detroit in the ‘thirties, he and Henry Ford had numerous hot interactions. In any instance, Niebuhr solidly rejected the liberal faith of historical progress as well as the rampant confidence in human reason. At that time, both commitments were widely held by politicians, scientists, educators and the general public. But the crises of WWI and the first recession challenged those beliefs and Niebuhr was the leading spokesman of the time. As a faculty member and biblical theologian at Union Theological Seminary in NYCity and a public intellectual, his writings regularly appeared in the city papers and around the country.

Niebuhr’s work is “political,” not “individualistic” and differs significantly from today’s popular Christianity, especially from right wing Evangelicalism. But he also understands that human nature and society are unintelligible without a biblical understanding. He asks how society works and why and how men and women behave as they do, and what sort of hopes are there for justice.

He seems to say that sin appears in its worst forms in Christianity and especially in the profoundest points of Protestant piety. But it’s his understanding of organizations–business, religious and governmental–that is most useful here. Relationships between groups (employees, employers, companies, unions) are predominately political. Power, self-interest and organizational hubris characterize all group relationships.

Thus, he concludes that groups will never respond to reason or persuasion. For Niebuhr, the real cause of social inertia, of today’s inequality, lower wages and today’s business practices is “predatory self-interest.” The only way to deal with injustice is by conflict and challenges of power. Ultimately, individual morality can overcome social immorality. Surowiecki’s article on inequality describes how the CEO of Aetna takes on corporate injustice in his home turf, and deals constructively with the problems of financial inequality.

What I especially appreciate about Niebuhr is, first, that’s he’s highly realistic. But also that he offers hope in the worst of situations.


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