Last week’s research paper from Zafar Nazarov of RAND, academic think tank in the US and Europe, titled The effect of the unemployment insurance wage replacement rate on reemployment wages, showed that higher unemployment benefits lead to lower wages commanded by those who manage to re-enter employment. In addition, higher wage replacement rate under unemployment benefits ‘depresses depresses the prospect of finding full-time work while increasing the prospect of finding part-time work”. To summarize, therefore, higher unemployment benefits paid hurt those unemployed who find a job in the future and lead to lower quality of jobs available to the previously unemployed.
Qui bono, then from higher unemployment payments? Those on permanent welfare, of course. Since they do not face a prospect of gaining a job in the future, they face none of the costs of higher unemployment benefits. But as their own pay is linked to unemployment benefits through social fairness arguments, there is all the upside of higher rates. Oh, the bizarre world of state-controlled wages, unemployment insurance and welfare benefits. Makes banks’ s shenanigans sound pretty banal.