Wednesday, November 22, 2006

Leftist Economists Mislead About Unemployment

In Svenska Dagbladet Brännpunkt today, two Swedish and one American left-wing economists claim that leading Swedish economist Lars Calmfors and the centre-right Swedish government mislead people about the effects of lowering unemployment benefits. They claim that the OECD study that supposedly Calmfors and the government bases their claim that lowering unemployment benefits will lower unemployment, only says that their findings are applicable on a "theoretical average country" and not on all member countries. Specifically, the Nordic countries are supposedly the countries where the theory is least applicable. The reason for this, they claim is that the Nordic countries have high spending on "active labor market policies" and strong unions which create a "coordinated and responsible wage formation".

I have no access to the OECD report they refer to (It is available online only to subscribers, which I am not), so I am unable to say whether or not the leftist economists misrepresent what is written there or not. However, there is no need to access it to demonstrate that they are wrong.

The theory that lower unemployment benefits will ,other things being equal, lower unemployment is based on the simple fact that people want money. From this, it follows that the greater the economic incentive to get a job is, the more willing will people be to accept whatever job they can get. Even jobs that have a lower pay than your former job, jobs that which you don't find particularly pleasant or jobs which require that you move geographically or some additional education. So, in order to deny that lower unemployment benefits will lower unemployment you really have to deny that people want money. As far as I know, there is no evidence that Nordics are different in this respect. Indeed, if you look at the statistics, you can see that employment to population ratios have fallen in recent decades in Sweden and the other Nordic countries, while the number of people living off the state have sky-rocketed.

And in the article, they actually implicitly admit this without realizing it. For example they argue that it might only result in a re-distribution in unemployment, from those eligible for unemployment benefits to those without. By bringing up that effect, they implicitly admit that lower unemployment benefits will increase job-seeking activities and lower unemployment for those with benefits. The only way that the effect they bring up can occurr is if the theory they deny in the rest of the article is true. The same thing goes for another of their "counterarguments", that it will lead to more short-term job seeking rather than supposedly more meaningful long-term jobs (as if one cannot look for another job after being employed). This effect too can only occurr if the theory their article is supposed to deny is true.

In short, the assertions of the left-wing economists rest on absurd assumptions about people not responding to economic incentives, is absurd in the face of mass unemployment in Sweden and is internally contradictory.


Anonymous Mark said...

Thank you Mr Karlsson for your response to the left-wing economists article in Aftonbladet.
As a small business owner here in Sweden I fully endorse the new government´s plans as ABSOLUTELY necessary for Sweden. The "benefits culture" that has grown under the careful hand of the socialists is just incredible to witness. It is not just immigrants that have taken advantage of this - the average Swede has now got used to it.
Let us hope that enough workers here will realize how they have been trapped and come out in support of Reinfeldt.

5:44 PM  

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