Submitted by Taps Coogan on the 21st of May 2020 to The Sounding Line.
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University of Chicago professor and economist, Steven Davis, recently spoke with CNBC about why he thinks the post-lockdown US job market recovery will be slow and why certain stimulus programs and bailout programs are delaying the evolution that needs to occur within the US workforce.
Some excerpts from Steven Davis:
“We surveyed firms in April and asked them what fraction of your layoffs do you say are permanent and that number was 23%. A recent household survey by the Washington Post actually got the same number. But then we did something else and looked back historically and said ‘Of the layoffs that firms and workers thought were temporary when they happened, how many actually led to recalls?’ and a good chunk of them never led to recalls. So we put that historical evidence together with the survey data… to come up with our 42% estimate (for permanent job losses)…”
“One other thing to keep in mind is, in the past, when we had temporary layoffs most of them came back within two months… but this pandemic recession looks like it is going to go on for much longer than that…”
“A new study… finds that if you look at the bottom one-fifth of wage earnings, they’re getting paid twice as much for unemployment benefits as they were paid when they were working. Now, you don’t need a PhD in economics to figure out that that is a very strong disincentive for going back to your old job and it’s a very strong disincentive to move to a new job if your old job is not coming back. That kind of policy discourages and delays this reallocation process that we need. Don’t get me wrong. There’s an important role for unemployment insurance benefits to help those workers… but paying them more to not work than to work is not a very good idea… Right now the US government is paying the airlines to keep their employees on payroll until October. Well, news flash, the airline industry is not coming back to where it was in October. So as soon as October comes around, there are two choices. Either taxpayers continue to pay airlines workers not to work, or there are going to be large layoffs… That’s just delaying the kinds of reallocation that we need…”
There is more to the interview, so enjoy it above.
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