Technology or the Safety Net?

The Financial Times reports,

Non-store retail, which includes online shops, recorded a boom in sales – up 31 per cent to $380bn. But the number of establishments rose only 12 per cent to 66,339 while employment in the sector was down slightly.

Pointer from Tyler Cowen. The gist of the article is that the U.S. economy is becoming more capital intensive.

Casey Mulligan, who gave a talk yesterday on his book The Redistribution Recession, says that 2/3 of the shortfall in employment can be explained by additions to the safety net. The big ones are extending unemployment compensation from 26 weeks to 99 weeks and taxpayers now supplying 65 percent of the cost of COBRA (health benefits) for people who lose jobs. Mulligan combines the various safety-net enhancements made since 2007 with standard estimates of how the “wedge” between the net gain to the worker from employment and the cost of compensation to employers affects hours worked, and that is how he arrives at his 2/3 figure.

In short, the economy has become more capital intensive since 2007 in large part due to the expansion of the safety net. Mulligan pointed out that this does not mean that the expansion was wrong, but he says you should not expect to return to the same rate of labor force participation that we had a few years ago as long as the new measures remain in place. And it will get worse once health care reform takes hold–including many Republican proposals as well as Obamacare. I do not have details on how health reform affects employment–that is the topic of Mulligan’s new book.

Mulligan would like suggestions for a title for the new book. I might suggest “Side Effect: Health Care Reform and the Job Market”

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6 Responses to Technology or the Safety Net?

  1. R Richard Schweitzer says:

    Title:
    Social (Political?) Objectives and Economic Effects: Measures and Results

  2. R Richard Schweitzer says:

    OR:
    Social Objectives, Political Methods and Economic Effects: Measures and Results

  3. S says:

    Its not hard to tell a two way causal story. Did Casey Mulligan rule that out?

  4. Robert says:

    Iatrogenic Policies: First Do No Harm

  5. Lord says:

    “BS” Effect meet cause.

  6. A says:

    “Why I Believed That Commercial Real Estate Would Not Fall In 2009, And Why It Doesn’t Say Anything Negative About My Framework In Macroeconomics”

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