Grace Weishi Gu on Benefit Costs and Jobless Recoveries

Robert Stein points us to a fascinating job market paper by Grace Weishi Gu on the relationship between benefit costs and employment growth. The following is drawn from her extended abstract:

During the early stages of a recession, employers decrease per worker hours and cut benefits in order to reduce labor costs while retaining workers. However, as the recession deepens, firms eventually have to lay off some employees. In the wake of a recovery, firms increase per worker hours and employee benefits, but to avoid extra benefit costs, they do not hire new workers. Moreover, firms are financially constrained from expanding their production and workforce. …

In particular, the dynamic benefit costs enable my model to deliver 2-to-7-quarter delays relative to NBER business cycle troughs for the employment recoveries following the 1990, 2001, and 2007 recessions, while generating no delay for the pre-1990 period. This falls in line with the data that has scarcely been matched in previous literature. Moreover, the benefit costs alone (with productivity shocks) can allow the model to explain up to 50 percent of employment volatility for the post-1990 period. In addition, the results are further strengthened when financial conditions are also incorporated. As recent empirical research suggests, these conditions have been playing an increasingly crucial role in business cycle fluctuations. [Emphasis added]

Gu’s analysis lends even greater urgency to the effort to constrain the cost of providing medical insurance, and it may also strengthen the case for decoupling medical insurance from employment. 

Reihan Salam — Reihan Salam is executive editor of National Review and a National Review Institute policy fellow.

Most Popular

Film & TV

Why We Can’t Have Wakanda

SPOILERS AHEAD Black Panther is a really good movie that lives up to the hype in just about every way. Surely someone at Marvel Studios had an early doubt, reading the script and thinking: “Wait, we’re going to have hundreds of African warriors in brightly colored tribal garb, using ancient weapons, ... Read More
Law & the Courts

Obstruction Confusions

In his Lawfare critique of one of my several columns about the purported obstruction case against President Trump, Gabriel Schoenfeld loses me — as I suspect he will lose others — when he says of himself, “I do not think I am Trump-deranged.” Gabe graciously expresses fondness for me, and the feeling is ... Read More
Politics & Policy

Students’ Anti-Gun Views

Are children innocents or are they leaders? Are teenagers fully autonomous decision-makers, or are they lumps of mental clay, still being molded by unfolding brain development? The Left seems to have a particularly hard time deciding these days. Take, for example, the high-school students from Parkland, ... Read More
PC Culture

Kill Chic

We live in a society in which gratuitous violence is the trademark of video games, movies, and popular music. Kill this, shoot that in repugnant detail becomes a race to the visual and spoken bottom. We have gone from Sam Peckinpah’s realistic portrayal of violent death to a gory ritual of metal ripping ... Read More
Elections

Romney Is a Misfit for America

Mitt’s back. The former governor of Massachusetts and occasional native son of Michigan has a new persona: Mr. Utah. He’s going to bring Utah conservatism to the whole Republican party and to the country at large. Wholesome, efficient, industrious, faithful. “Utah has a lot to teach the politicians in ... Read More
Law & the Courts

What the Second Amendment Means Today

The horrifying school massacre in Parkland, Fla., has prompted another national debate about guns. Unfortunately, it seems that these conversations are never terribly constructive — they are too often dominated by screeching extremists on both sides of the aisle and armchair pundits who offer sweeping opinions ... Read More