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Tuesday, November 30, 2010

No Increase in Unemployment Benefits

Mercury News reports that the US Senate failed to pass an extension of unemployment benefits. They explain that this means that 2 million unemployed people in the US will face losing their benefits. They claim that this will have longterm repercussions for the nation and its economic recovery that is already slow coming. The article claims that this will stunt the already slow economic recovery, and make it harder for people to get back to work. The author of the article complains that this will particularly hurt California, that has the 3rd highest unemployment rate in the nation. The article seems to focus on more "human" or emotional angles such as testimonies from people who are unemployed, with families, and those who are barely getting by, etc. They use this rather irrelevant sympathetic information as grounds/reasoning for economic policy.

Increasing unemployment benefits will not solve our unemployment woes and will slow economic recovery. One solution that is not being discussed, but would actually put people back to work is to abolish the minimum wage. When the minimum wage is imposed, we face a surplus of labor due to what is essentially a wage price floor. If we were to abolish the minimum wage the free (well free'er) market would be able to find equilibrium wages. Where the supply of labor would meet the demand for workers by each industry, based on their "price taker" wages. The free market would be able to greatly decrease or eliminated the unemployment of those willing to work, while making the economy more efficient. Abolishing minimum wage in California would actually make a particularly significant impact in unemployment because their minimum wage is $0.75 higher than the rest of the nation (national minimum wage $7.25, CA minimum wage $8.00).

So rather than focusing on how disenfranchised the unemployed will be if the government doesn't extend their benefits, we should find solutions that will actually put people back to work. Rather than complaining that government is not increasing its inefficiency we should be finding solutions that will remove government inference in the economy and improve efficiency.

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