Flashback - Extending Unemployment Benefits

[Early in 2012 I used a question about the motivational aspects of unemployment benefits to show how sloppy news organizations are about data gathering. This kind of "research" continues to this day without being challenged, while Congress raises the issue of further extending unemployment benefits in light of the coronavirus lockdown. ]

First, this is not about the pros and cons of extending unemployment benefits. It’s about using critical thinking to deal with the information we receive on any subject. This just happens to be a good example. 

At the end of this CNN Money article they ask: “Do you receive unemployment insurance? Have you not been looking for a job as hard because you are getting benefits? Email [address] with your contact information and you could be contacted for an upcoming story or video.”

Two thoughts. As I have pointed out many times before, testimonials or anecdotes are not evidence. These reporters will receive e-mails and sort through them probably to find ones to support the story they want to tell. Second, even if they condensed the information received and delivered a summary, this is an extremely poor method of sampling. Their data would not be representative and any statistical conclusions would be meaningless. How many people do you seriously think will e-mail to say that they are just sitting around until their unemployment runs out, making no effort to find a job?

This practice of finding an individual example and selling it as the plight or experience of many is common among reporters, politicians and advertisers. They want to put a face on the crisis, but it borders on deception. Often the purpose is to gather support for a cause or product by eliciting an emotional reaction from the viewers or voters. It steers us away from the kind of critical thinking and analytical problem solving required to get us (the US) out of the mess we are in.

[By the way, if I had been inclined to write about the motivational effects of unemployment benefit extensions, I need look no farther than a National Bureau of Economics Research working paper in 2015 after the recession. Surprise, surprise! They estimated “the abrupt end of unemployment benefit extensions led to 1.8 million additional new US jobs....”, that is, new workers!]

Flashback - Discrimination

[Here is a posting from June 2011. The original title was Age Discrimination, but the idea is broader.]

Recent news articles presented the fact that the older unemployed are finding it harder to reenter the workforce. In one television interview a man told the reporter that one company directly admitted to him that he had all the qualifications and experience and if he were 20 years younger, the job would be his. This is not only illegal, but a distinct failure in the dimension of critical thinking. It’s illogical and probably a disservice to the owners and customers of the company.

Consider that until recently it was not unusual for a company to have a turnover rate in the area of 20% - much higher in some cases, slightly lower in others depending on the work.  [Today (2019) it might be higher than that considering the number of job openings available to any disgruntled worker.]

At 20% turnover the company is losing it’s entire workforce, on average, every 5 years.  Even a person 55, who expects to retire no earlier than 62, would have a longer than average tenure.  In any economy it's likely that a 55-year-old would remain a loyal employee for those seven or more years until retirement with a company willing to give him or her a chance.

Furthermore some studies have shown that older workers spend more time on the job, with fewer sick days, no lost time due to maternity leave, fewer interruptions with calls from the daycare or school, etc.  Add in the mentoring potential, and arguments in favor of age discrimination become even weaker.  (Here are links to just a couple of articles supporting this position.) Furthermore, older employees have not grown up with all the technology. Those who are successful have shown that they can learn and adapt on the fly.

A company that ignores these realities exhibits behavior based on unwritten policies, past practices and gut feelings. That is both irrational and not in their own best interests – a failure in the dimension of critical thinking.

Reflect on this:  how many other laws are in place, including all other aspects of illegal discrimination, that would be unnecessary if company executives made sound (critical thinking) decisions instead of letting their prejudices short-circuit their brains?  And how many tax dollars could be saved on the development and enforcement of those laws and regulations if people just acted sensibly?

More Economic Reality

Last time I told of how some fast food workers were demonstrating for a $15 wage, while in parts of North Dakota where the economy was strong and unemployment very low, one Wal-Mart was offering over $17 per hour starting pay to attract workers.  It’s purely a matter of the supply of willing and able workers falling short of the demand.  Many of the able-bodied in that part of the state can work in jobs related to oil production for far more money.  Accordingly, the best way to get a good-paying job is to have skills or talents either superior to many others or rare in society.  Examples include top salespeople making the best commissions and star athletes winning tournaments or big contracts, but the principle generally extends to the rest of us who expect to get rewarded for a good education and hard work.  (Of course some get rewarded for being favored by the boss or being related to the owner, but much of that is out of our control.)

That supply and demand dynamic works well if the jobs exist, but where do jobs come from?  Politicians would like us to believe that if elected, they will create jobs.  Later, if the job situation improves, they take credit; if jobs disappear, they blame evil corporations, the general economy or other politicians – or sometimes they make up numbers and take credit anyway!  The truth is that government does not create jobs (except more government jobs).  Politicians can only make it easier, less burdensome, for businesses, especially small businesses to operate and grow.

Do businesses create jobs?  I’ve often heard people, especially during the recession, complain that if Apple or another big company has so much cash on hand, why don’t they use some of it to hire more people.  These complainers don’t take it to the next step by asking what the new employees would do.  Would they help to make more products, products that would just accumulate in a warehouse somewhere?  That might work in the short term, but then those people, plus others, would be laid off until the products sold.  With no one to buy the products or no one interested in the extra service the companies have no reason to hire anyone.  They will continue to accumulate cash while they advertise in an attempt to grow; but they need more sales to hire more workers.

The ultimate conclusion then is that customers create jobs!  Companies must have someone interested in buying a product or service to justify hiring someone to produce that product or provide that service.  The lemonade stand at the bottom of a dead end street is pretty much doomed to failure.  Apple without people lining up to buy the latest phone has no reason to maintain their level of stores, distribution, research and advertising staff.  A large majority of new start-up businesses fail in the first 2-3 years not primarily because they are poorly run, but because they are unable to attract enough customers to cover their costs.  Many entrepreneurs will live on a minimal salary or no pay at all in an attempt to get their business off the ground, and that means building a customer base.

No matter what we hear from politicians over the next 14 months and beyond, government does not create jobs.  Customers are responsible for private sector jobs and our jobs depend on those customers being happy and coming back.  Unfortunately too few executives grasp this concept well enough to value the workers who make their products or otherwise have face-to-face contact with their customers and to treat those workers with the respect and honesty necessary to motivate continuous caring and high performance.

Life, Liberty and ...Cell Phones?

I was struck by a lengthy USA today article about the long-term unemployed, those who have been looking for work for six months or more.  It is really a tragedy that unemployment has stayed so high for so long with barely enough new jobs to support population growth and many older workers shunted aside.  The number of long-term unemployed has increased 5-fold over the past decade, causing financial and psychological hardship.

The article presents three examples, presumably to elicit empathy and compassion by showing real people dealing with this crisis.  They quote their expert:  “It’s usually a shock followed by a slow downward spiral to a lower standard of living and a radically changed life.”  Unfortunately, the examples given include several instances of poor decisions and seem to indicate that expectations have been set to where Americans have redefined the concepts of sacrifices and rights.

The first couple lost both their jobs and a total $75,000 income.  They lived for 2 years on unemployment and gifts from relatives.  Since then they have gotten by on Social Security disability, food stamps, federal assistance for utility bills and another program that pays most of the mortgage on a three-bedroom duplex.   But they kept their cable TV and “our home” and “our cars” – that’s right cars, plural, with associated maintenance, insurance, registration, etc.

Next is a 46-year-old with an MBA from Chicago, out of work for five years.  After a couple of years he had “exhausted his jobless benefits, and his inheritance was dwindling.”  State aid to pay the mortgage on his high-rise condominium has expired and he lives on his savings.  He got a part time job and “ditched his landline phone and diversions such as two-week cruises and going to the theater.”  He admits turning down training to become a nurse based on his MBA degree – unclear whether that was out of pride or not wanting to see his degree wasted.

Finally, a Florida man, now 60, lost his $97,000 job in 2008 when the company shut down.  Since then he has applied for other jobs and tried consulting.  He lived for two years on unemployment insurance and his savings.  “He’s downsized his lifestyle, dropping a country club membership, forgoing health insurance for now and limiting his penchant for $150-plus dinners-for-two to a monthly indulgence.”  He has pretty much dropped the job search, figuring he can live off savings and Social Security (beginning in 2 years).  He spends much of his time on the beach, reading books and boogie boarding.

So the new American Bill of Rights seems to include:  cable TV, a house, two cars, and a cell phone (“ditched his landline”); and it’s a sacrifice when we are forced to give up cruises, trips to the theater, frequent luxury dinners, and country club memberships!  We can live off government programs and charity while we reorient to the new lifestyle as we continue to be picky about career training even after five years of unemployment.  Remember, these examples are offered as representing typical cases, ordinary situations that we are supposed to empathize with.

In a little more than a decade Americans have faced shocking events that should have moved us to adjust our perspective, emphasizing the importance of core values and downplaying the pursuit of material possessions, readjusting our expectations about what is necessary and what we “deserve.”  Terrorist attacks of 9/11, the bursting of the housing bubble and the subsequent Great Recession, this long-term unemployment issue, and loss of lives in the Middle East should have been a wake-up call, a reminder about reality, a warning against complacency.  The message seems to have been lost even on many who have been directly affected.

Unintended Consequences

A few days ago my wife called to me about a news story on the Internet.  “In France, they’re raising the taxes on the rich to 75%, so guess what’s happening.”  I responded that some rich people were probably moving out of France.  “Yes, and the realtors are happy to get those huge houses on the market.”

It didn’t take a stroke of genius to guess correctly, merely some critical thinking.  Behavior has consequences, actions have reactions, and rich people have a lot more flexibility than the rest of us.  When taxes go up, they can move their investments or even move themselves.  In America it’s rare that they would leave the country, but the wealthy and the big corporations gravitate toward states where the tax and regulatory environment is more favorable.  If the rest of us had more flexibility, wouldn't we do the same?

The following day I read about a proposed bullet tax in Chicago.  The Cook County President proposed a tax of five cents per bullet and $25 per weapon sold in the county.  One objection to the proposal is that customers would just go to gun stores in neighboring counties or states to do business.  Actual tax revenues would be lower than expected, and gangs probably don’t buy their guns and ammo anyway.  It would not get the desired result.

There are many other government actions and programs that don’t always yield the anticipated benefits.  One that comes to mind is Unemployment Insurance.  Some government-funded research indicates that extensions can be counter-productive.  “For some UI recipients...these same payments can lead to a prolonging of their time in benefit status and higher aggregate unemployment. The UI Program can adversely affect the labor market in other ways, such as increasing the volume of unemployment occurrences caused by employers. The combined effects on unemployment duration and unemployment occurrences cause the overall unemployment rate to be higher than it would otherwise be.”

Another example is the college assistance program which, in some cases, rewards parents who spend on toys and vacations rather than saving for college.  I know of some cases where couples delayed marriage to avoid counting the fiancé’s income which would not make their children ineligible for aid.  Encouraging this behavior is clearly not the intent of the program.

I remember several years ago an ill-fated tax on luxury yachts intended hit the wealthy that resulted instead in lost jobs for workers at American ship building companies as rich buyers took their business overseas.

Finally, here is a recent example from Italy.  All seven members of the National Commission for the Forecast and Prevention of Major Risks were convicted and sentenced to six years in prison for not giving adequate warning of an earthquake that struck in 2010.  Earthquakes are extremely unpredictable.  Since then four other top government scientists have resigned, and I wouldn’t expect too many applicants for the vacant positions.  By this action they have undermined their own program as well as the integrity of international seismic research where open sharing of data is vital.

People change their behavior in response to rules and regulations in predictable ways.  The same thing often happens in corporations with poorly designed incentive systems.  Executives collect bonuses even when business results are poor.  Line workers game the system to meet goals without improving productivity or performance.  Taking a behavioral viewpoint and using a little critical thinking during the drafting or design stages could anticipate these consequences, making laws and programs more effective.  Unfortunately, it doesn’t happen enough.

Extending Unemployment Benefits

First, this is not about the pros and cons of extending unemployment benefits.  It’s about using critical thinking to deal with the information we receive on any subject.  This just happens to be a good example.

At the end of this CNN Money article they ask:  “Do you receive unemployment insurance? Have you not been looking for a job as hard because you are getting benefits? Email [address] with your contact information and you could be contacted for an upcoming story or video.”

Two thoughts.  As I have pointed out many times before, testimonials or anecdotes are not evidence.  These reporters will receive e-mails and sort through them to find ones to support the story they want to tell.  Second, even if they condensed the information received and delivered a summary, this is an extremely poor method of sampling.  Their data would not be representative and any statistical conclusions would be meaningless.  How many people do you seriously think will e-mail to say that they are just sitting around until their unemployment runs out, making no effort to find a job?

This practice of finding an individual example and selling it as the plight or experience of many is common among reporters, politicians and advertisers.  They want to put a face on the crisis, but it borders on deception.  Often the purpose is to gather support for a cause or product by eliciting an emotional reaction from the viewers or voters.  It steers us away from the kind of critical thinking and analytical problem solving required to get us (the US) out of the mess we are in.