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Tuesday, November 30, 2010

Look, I have a marginally useless skillset!

All of this talk in class and our current national economic situation got me to thinking about something that I have fortunately never had to take advantage of - Unemployment Benefits – what do they do? Are they a forced redistribution of wealth from employers (and potentially working citizenry) to unemployed workers who have not yet found a job? Yes, that is without a doubt true. But why do unemployment benefits exist? Could it be social justice, to help provide for the basic needs we deem everyone should have when in a state of ‘need’, perhaps but then shouldn’t they be subject to the same sorts of means test that we have discussed with social security benefits? Then again isn’t unemployment just part of the normal business cycle, isn’t it part of the dynamic system of trial and error that we utilize to better understand the real world economy?
Keeping that in mind I start to think about one reasoning or more importantly a validation that I have heard for unemployment benefits. This reason is closely related to the increased productivity that is gained through specialization. For example a computer engineer who has comparative advantage in working with computer IT systems is laid off as part of the regular business cycle. So he begins to look for work. Now he hasn’t’ been a very thrifty individual and his personal savings quickly runs dry, out of desperation he takes a job as an IT help desk tech. A job where he produces something of less value but could readily find a position. One train of thought would say that he is being under utilized in this role and that Unemployment benefits allows him to subsist for a longer time while he finds a position that allows him to meet his full comparative advantage potential as a systems engineer. However what this doesn’t take into account is the consumption of or a demand for his position as a systems engineer. If the demand doesn’t exist then what he can produce doesn’t hold value for someone else. And if he had comparative advantage over others within that field they would be the ones being hired last or being fired first. This new position for him we have to deem is what he has comparative advantage in at that moment. Not only based on his skill set and ability to produce but also on how other’s value his production. To each his ability, no more and no less, but also of how that ability is valued by everyone else and in comparison to everyone else.
Thus based on this new line of though unemployment benefits would maybe make sense if we simply wanted to produce the most possible without a thought to how that production is valued. But that would seem sort of ridiculous, what good is producing 1000 widgets if no one wants widgets. So if we’re stuck with unemployment benefits, maybe we should treat them in the theoretical way we discussed with social security in class, as ‘insurance’ for unemployment based on a means test and in a manner that would not incentivize intentional unemployment. We have some of that now but it’s far from what it could be.

Comments:
I think "unemployment benefits" are supposed to be considered "unemployment insurance." As insurance the idea is sensible, especially when considered against the idea of "benefits." But, I suppose politics leads to a discussion that stops talking about insurance after a while, because after all insurance should have a pretty well-defined amount that will be paid when the bad event occurs. Many politicians would not want that idea ex post, while ex ante insurance is perhaps the only way to get such statutes passed to begin with.
 
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