Posts tagged with: University of Chicago

“Unless incentives suddenly stopped mattering during this recession, says Casey B. Mulligan, an economics professor at the University of Chicago, “it appears that the expanding social safety net explains some of the excess nonemployment among unmarried women who are heads of households.”

Blog author: jballor
posted by on Wednesday, November 23, 2011

Over at the Economix blog, University of Chicago economist Casey B. Mullin takes another look at some of the recent poverty numbers. He notes the traditional interpretation, that “the safety net did a great job: For every seven people who would have fallen into poverty, the social safety net caught six.”

But another interpretation might have a bit more going for it, actually, and fits in line with my previous analogy between a safety net as a trampoline vs. a foam pit:

Another interpretation is that the safety net has taken away incentives and serves as a penalty for earning incomes above the poverty line. For every seven persons who let their market income fall below the poverty line, only one of them will have to bear the consequence of a poverty living standard. The other six will have a living standard above poverty.

Of course, most people work hard despite a generous safety net, and 140 million people are still working today. But in a labor force as big as ours, it takes only a small fraction of people who react to a generous safety net by working less to create millions of unemployed. I suspect that employment cannot return to pre-recession levels until safety-net generosity does, too.

The conclusion ought to be that policies that provide incentives for people to not seek out work as vigorously as they otherwise might, even if such incentives are unintended consequences, are morally suspect and economically questionable.