Economics 25/05/2010: Here's one for the Budget 2011

Just a chart - from IMF Fiscal Stability report:
Now, as noted - this excludes housing, medical cards, child supports etc. Given that in Austria, Belgium and Denmark rental values are lower, while healthcare is universal for all, where does it put the combined value of long term unemployment benefits in Ireland compared to these two countries? And given our wage deflation since 2008, relative to Austria, Belgium and Denmark?..

Of course, we simply have to omit the petro-dollars fueled economy like Norway from consideration. Notice - this chart reflects comparatives for 2008 data for long term unemployed. Cutting unemployment benefits is a hard target. We will have to face that choice, however. Given this, my view would be to impose more significant cuts on longer term recipients, and lower cuts on short term recipients. This should create stronger incentives to seek employment and skills for those who have the lowest propensity to do so - the long-term unemployed.

Economics 10/02/2010: Minumum wage and unemployment benefits

Two weeks ago in my Sunday Times article (see here) I wrote about the long-term effects of the minimum wages. Instead of dealing with the losses of economic competitiveness from Irish high minim wage, I elected to focus in the article on the distorted incentives and reduced training for potential and actual minimum wage recipients. Interestingly, these adverse effects are nearly identical for minimum wages and unemployment benefits.

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.