Opinion: President Obama picks a labor economist to help on jobs front


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Princeton University economist Alan B. Krueger, whom President Obama nominated Monday to lead the White House Council of Economic Advisers, is nothing if not prolific. A specialist in workforce issues, he’s written about how immigrants have less effect on low-wage U.S. workers than some believe, how increasing the minimum wage doesn’t necessarily lower employment and how strongly the demand for health insurance is affected by the price, among many other topics.

Perhaps the research most relevant to his new post, though, is the recent work he did with Andreas Mueller of Stockholm University examining the efforts by unemployed people to find new jobs. Among their findings: People spend less time looking for work each day the longer they are unemployed, but they don’t lower their wage demands significantly over time. This is especially true for younger workers, for whom the long-term cost of a big cut in pay is more severe than for an older worker closer to retirement, the study found.


Those trends aren’t helpful. Krueger and Mueller offered the following observations about the people who got off of unemployment insurance (‘UI’) before their benefits ran out:

The results accord with standard search theory: workers who devoted more time to searching for a job were more likely to exit UI early, as were those with a lower reservation wage relative to their past wage. Those who searched 20 hours more per week are about 3.5 percentage points, or 20 percent, more likely to exit UI early. Having a 20 percent lower reservation wage is associated with a 1 percentage point, or 6 percent, increase in the likelihood of exiting UI early.

You might conclude from these numbers that Washington should slash the duration of unemployment benefits. But Krueger and Muller’s study suggests that the benefits are not making laid-off workers less eager to work or more unrealistic about their wage demands.

According to the study, when a worker’s unemployment benefits lapsed, it did not cause a statistically significant number of them to intensify their search for work or reduce the wages they’d be willing to accept from an employer. In other words, there was no rush to flood the market with résumés after the benefits ran out, and just as important, no new willingness to accept a deeper pay cut. Why? Perhaps that’s because, after months of searching, laid-off workers simply don’t think that either change would make a difference. That’s consistent with the argument that the problem is the shortage of openings, not the availability of a governmental safety net.

The federal government has been providing almost a year and a half of additional unemployment benefits to workers who exhaust the six months of aid most states provide. Those additional federal benefits are set to expire at the end of the year, however, meaning that anyone laid off after mid-July is likely to be ineligible for federal help -- their state benefits won’t run out until next year, after the federal program is closed to new applicants.

The Obama administration has already suggested that Congress should continue offering extended unemployment benefits after the end of the year, and it’s a safe bet that, if confirmed, Krueger will add his voice to that chorus. The price tag could be more than $60 billion, however, so it will be a very tough sell.


Krueger has split his time between Princeton and Washington, having served in the Clinton and Obama administrations. Interestingly, his nomination drew cheers from such conservative economists as Greg Mankiw (who led President George W. Bush’s economics council) and Martin Feldstein (who led President Reagan’s) and such liberals as Paul Krugman and Mark Thoma.


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-- Jon Healey