On “Better Job Matching”

by Josh Barro

 

 

One of the possible advantages that is touted for more generous UI (including by Mike Konczal) is the idea that it allows for better job matching—people can wait to find the right long-term job opportunity instead of taking the first job that becomes available. Under this theory, longer unemployment duration may actually be a feature of unemployment insurance rather than a bug.

We should be careful about this, as it assumes rational expectations on job seekers’ part about what they can expect from a new job. Is greater liquidity really allowing job seekers to take the time to find better jobs? Or is it just letting them prolong a vain search for an unattainable salary before settling?

Especially in a deflationary economy, it may be important to encourage workers to settle. In many cases, a worker’s best choice today sadly is to take a job that pays less than the one he or she lost. But people have a strong psychological resistance to doing this, which is why wage stickiness is a problem and why deflation hinders economic recovery. If generous UI fosters more wage stickiness, that’s an argument against generous UI.

That said, I still favor UI extension, because it appears to me that the effects of UI duration on unemployment duration are not very strong. But I’d caution against looking for an upside in the increases of unemployment duration that it does cause.