Life is unpredictable, but businesses crave certainty. Higher, predictable costs are preferable to lower, volatile costs. The 1998 Master Settlement Agreement will cost the U.S. tobacco industry $206 billion over 25 years, but it shielded the companies from litigation. As a result, in the years after the agreement, “returns to investments in the tobacco industry exceeded returns from investments in securities of other companies.” (I’m not endorsing the tobacco industry, I’m just making a point about certainty.)
Fast-forward to December 2010: How’s that whole quest-for-certainty thing working out for American businesses? Here’s a clue: The new year begins four weeks from today, and nobody knows what the tax rates will be for 2011.
Little wonder, then, that the unemployment rate ticked up again this week. Businesses are reluctant to create new jobs in the face of cost-uncertainty.
If you have eight minutes, check out the Wall Street Journal video at the top of this post. The Journal’s opinion podcasts, which are available outside the pay wall, frequently do an effective job of explaining the ramifications of the news. There’s no transcript, but here are some excerpts:
The economy may be OK but the job market is terrible — longest stretch above 9% since World War II…. So the way to create new jobs for those structurally unemployed, it sounds like you need to allow new businesses to be created, new opportunities to be created for these people to seize, and to do that you’ve got to have a tax regime that encourages growth and encourages new business. …
I heard the White House’s statement today, which was basically, our solution for the unemployment problem is to expand unemployment insurance. Well look, you don’t put more people back to work by paying people not to work.
I’m not opposed to the very idea of unemployment benefits. After paying unemployment insurance tax for two decades, I gladly cashed the unemployment checks when I got laid off by Citigroup after 9/11. The benefits lasted for 26 weeks, and just as they were running out I was able to get a good job that replaced about two-thirds of my prior income.
I’m not even opposed to the concept of extending unemployment benefits during a dreadful economy. I think there was a good case for extending them once. But they’ve been extended multiple times, to 99 weeks, and you can’t keep extending them forever. Politico has a good roundup of opinions on all sides of the unemployment insurance debate. Here’s a statement by Columbia professor Charles Calomiris that works for me:
There is no question that extending unemployment benefits for such a long time period increases unemployment. Unemployed workers searching for work often refuse offers, hoping to get better offers in the future. Unemployment insurance makes such refusals happen much more.
On the other hand, for many workers, long-term structural unemployment requires them to acquire new skills, and that can take time… But no matter what people decide to do vis-a-vis re-training, unemployment insurance should not be provided indefinitely. Two years of unemployment insurance, even for those seeking re-training, is too much.
There are jobs out there for people who are willing to lower their expectations. I found two jobs last year: a part-time gig slicing deli food at a grocery store, then a full-time job at a church. My title is Parish Administrator, and I can legitimately describe my job as “running a busy church office.” But if you call during business hours and ask to speak to the church secretary, you’ll be transferred to me — in the unlikely event that I didn’t answer the phone in the first place. I’m making about what I made in 1985 as a copy editor at a small daily newspaper.
None of this is what I had in mind 30 years ago when I graduated from Princeton. But it’s honest labor, it’s mission-critical work for an admirable organization, and I’m very grateful to have it.