Ideology and Unemployment Insurance

Kevin Drum thinks that economics is inherently ideological.

Ideology is everywhere, and it's often strongest in the very places that pretend the hardest that they don't cater to it. Economics, unfortunately, is still an immature discipline, much more complex than something like chemistry or physics, and that mean that if you pick your assumptions carefully you can prove almost anything you want. And economists do.

He points to Mike Konczal who describes the bias built-in to economic theory:

Speaking as someone who has taken graduate coursework in “continental philosophy”, and been walked through the big hits of structural anthropology, Hegelian marxism and Freudian feminism, that graduate macroeconomics class was by far the most ideologically indoctrinating class I’ve ever seen. By a mile. There was like two weeks where the class just copied equations that said, if you speak math, “unemployment insurance makes people weak and slothful” over and over again. Hijacking poor Richard Bellman, the defining metaphor was the observation that if something is on an optimal path any subsection is also an optimal path, so government just needs to get out of the way as the macroeconomy is optimal absent absurdly defined shocks and our 9.6% unemployment is clearly optimal.

Arthur Laffer, darling of conservative economist, made a similarly ideological claim in a recent WSJ op-ed. He argued that unemployment insurance creates a disincentive to work, likening it to welfare. The problem is this ignores both the concept of unemployment insurance as just that - insurance. Highly skilled workers tend to be very specialized, and should not be expected to retrain in a new field just because of an economic downturn. What's more, they will only introduce more competition into the low-skill market. The idea of insurance is that we all pay into a pool so that during downturns, those of us unable to find employment will receive a sort of buffer until the economy picks up again. This is why it is called "insurance".

According to the theory, if the market for, say, heart surgeons takes a dive then offering unemployment insurance will disincentivize them to look for work. What they should be doing is taking a enormous pay-cut and applying at some low-skill job. But what if a new surgery position opens up? Should they just run out on their new employer? And do you really think that, in hard economic times, when jobs in their profession are hard to come by, they're simply going to not look for work, passing by possible (secure) job opportunities just so they can sit home and live off the maximum insurance payment - assuming that when it runs out they'll be able to find work easily?

It's all pretty ridiculous. I say this as an unemployed teacher who applies for every possible position available. I'd take anything in my profession at this point. If I thought there would never again be any teaching jobs I would face the reality and find a new line of work. But there will be (hopefully soon!), and applying at best buy isn't going to do me or any of the other low-skill workers any favors.

On a side note: many people are not quite aware of how unemployment insurance works.  You'll hear them - guiltily - justifying their acceptance of government checks by saying things like, "Well, it's my money.  I paid into it for years."  This is only partially true.  The structure of unemployment insurance system is a bit complicated, but suffice it to say that what one is paid has nothing to do with the total amount they have paid in.  While your payment rate is based on your previous year's income, the total payment is a fixed amount, regardless to any lifetime contribution to the pool. 

While working, your employer is the one who actually pays the state each month.  They are responsible for paying a set amount for each worker.  You could argue that this ultimately comes out of one's wages, but the amount is usually very small, with a monthly maximum (I believe) of around $50.  This means that the most an employer ever pays for a full time worker is $600 a year.  So if a hypothetical payment allocation of $6000 was made, one would of course have had to work for 10 years to pay in that amount to the system.

In essence, unemployment insurance is just that - insurance.  The model is that even during recessions, when unemployment might reach 5, 8, or even 10%, the other 90% is still paying into the pool, with the community-minded concept that we are all doing our part and if one of us faces difficulties we all - "have his back" so to speak.  This is no different than any other insurance model (healthcare, auto, etc.), where one might go a lifetime without needed open-heart surgery, God-forbid.  But in case we do, we're covered.