In the recurring debates that have accompanied attempts to extend Federal unemployment compensation over the past year, critics, mainly on the right, have argued that extending unemployment benefits subsidizes idleness and leads job-seekers to remain unemployed rather than take available jobs.
The critics are right - but they're wrong about the utility of extending unemployment benefits. According to research conducted by one of this year's winners of the Nobel Memorial Prize in Economics, unemployment compensation improves the efficiency of the labor market.
How so? It allows job seekers to reject imperfect job matches and hold out for better ones, thus making it more likely that the employer and the right candidate for the employer's opening will find each other.
Christopher Pissarides of the London School of Economics conducted research on the efficiency of labor markets in 1984 that showed that under ordinary conditions, the intensity of job searches -- how hard employers and employees look for the right fit -- is too low and equilibrium unemployment is too high. One of the problems he discovered is that job seekers reject too few jobs, not too many.
There's a reason for this: As job seekers' resources dwindle, the pressure for them to take a job, any job, increases until, for example, the systems programmer ends up working the cash register at a Target -- a match that will ultimately satisfy neither the systems programmer nor Target and an inefficient outcome.
Unemployment compensation in such a system allows job seekers to hold out for more appropriate offers, thus increasing the likelihood that our systems programmer will find another job as a systems programmer.
This finding suggests that in periods of persistently high unemployment, such as now, extending unemployment compensation on a temporary basis actually makes sense, as it makes it more likely that the many jobs still available will be filled by those best suited for them.
Improve the efficiency of your job search by using PhillyJobs.com to find the right match for you.
The critics are right - but they're wrong about the utility of extending unemployment benefits. According to research conducted by one of this year's winners of the Nobel Memorial Prize in Economics, unemployment compensation improves the efficiency of the labor market.
How so? It allows job seekers to reject imperfect job matches and hold out for better ones, thus making it more likely that the employer and the right candidate for the employer's opening will find each other.
Christopher Pissarides of the London School of Economics conducted research on the efficiency of labor markets in 1984 that showed that under ordinary conditions, the intensity of job searches -- how hard employers and employees look for the right fit -- is too low and equilibrium unemployment is too high. One of the problems he discovered is that job seekers reject too few jobs, not too many.
There's a reason for this: As job seekers' resources dwindle, the pressure for them to take a job, any job, increases until, for example, the systems programmer ends up working the cash register at a Target -- a match that will ultimately satisfy neither the systems programmer nor Target and an inefficient outcome.
Unemployment compensation in such a system allows job seekers to hold out for more appropriate offers, thus increasing the likelihood that our systems programmer will find another job as a systems programmer.
This finding suggests that in periods of persistently high unemployment, such as now, extending unemployment compensation on a temporary basis actually makes sense, as it makes it more likely that the many jobs still available will be filled by those best suited for them.
Improve the efficiency of your job search by using PhillyJobs.com to find the right match for you.
By: Sandy Smith
Sandy Smith is an award-winning writer and editor who has spent most of his career in public relations and corporate communications. His work has appeared in The Philadelphia Inquirer, the Philadelphia CityPaper, PGN, and a number of Web sites. Philly-area residents may also recognize him as "MarketStEl" of discussion-board fame. He has been a part of the great reserve army of freelance writers since January 2009 and is actively seeking opportunities wherever they may lie.
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