Friday, 19 July 2013

Micro Over Macro

Five years after the economy tanked, unemployment remains high. There are numerous culprits, but one deserves special attention: unemployment benefits. In 2010, I examined these, on a theoretical level, in “The Consequences of Extending Unemployment Benefits,” arguing that unemployment benefits weaken the incentives for unemployed persons to find and accept work. Three years on, experience has provided evidence to support standard economic theory.

The evidence centers on the Beveridge curve, a little-known measure of the relation between job-vacancy and unemployment rates. It’s named after the English social democrat and eugenicist Sir William Beveridge, who published a series of influential reports on employment and social insurance in the United Kingdom. Most of Beveridge’s work was done before and during the Second World War. After the Second World War, economists L. A. Dicks-Mireaux and J. C. Dow formalized the vacancy-unemployment relation as the Beveridge curve.

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