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Thursday, September 1, 2011

Obama’s New Top Economist Opposes His Jobs Program

The mainstream press has heaped praise on President Obama’s pick to head his Council of Economic Advisers. Alan Krueger is indeed a prestigious economist, noted for his empirical work and lack of ideological bent.

The mainstream press particularly emphasizes his controversial work on minimum wages which concludes that in the case studied the minimum wage did not depress employment. Insofar as this finding defies much conventional wisdom, this particular study set off a string of research that served the economics profession well.

Only the Wall Street Journal has noted that Krueger, in two research papers for the prestigious National Bureau of Economic Research, found that more generous unemployment benefits raise unemployment.  In his 2008 study, Krueger concluded that job search is inversely related to the generosity of unemployment benefits. In other words, unemployed workers who get generous unemployment insurance spend less time looking for a job.

This finding, by the way, is consistent with a great deal of research that shows that the unemployed find jobs near the end of coverage by unemployment insurance.

The extension of unemployment insurance beyond the current almost two years will be a major plank in Obama’s job program. His new top economic advisor should tell him to drop that provision if he really wants to lower the unemployment rate.

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