The Nanny State Never Rests

Incentives Not To Work

"The second way government assistance programs contribute to long-term unemployment is by providing an incentive, and the means, not to work. Each unemployed person has a 'reservation wage'—the minimum wage he or she insists on getting before accepting a job. Unemployment insurance and other social assistance programs increase [the] reservation wage, causing an unemployed person to remain unemployed longer." Any guess who wrote that? Milton Friedman, perhaps. Simon Legree? Sorry. Full credit goes to Lawrence H. Summers, the current White House economic adviser, who wrote those sensible words in his chapter on "Unemployment" in the Concise Encyclopedia of Economics, first published in 1999. Mr. Summers should give a tutorial to the U.S. Senate, which is debating whether to extend unemployment benefits for the fourth time since the recession began in early 2008. The bill pushed by Democrats would extend jobless payments to 99 weeks, or nearly two full years, at a cost of between $7 billion and $10 billion. As Mr. Summers suggests, rarely has there been a clearer case of false policy compassion.

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