This year’s Nobel prize for economics went to three experts who have been spending much of their last few years trying to figure out why unemployment rates remain high even in economies that provide a lot of recruitment opportunities.
The three gentlemen, two Americans Peter Diamond and Dale Mortensen, and British-Cypriot Christopher Pissarides, have been awarded the prestigious prize by the Royal Swedish Academy of Sciences in praise of their work on the so called “friction theory,” a reference to the simultaneous presence of high unemployment and wide-ranging vacancies.
The academy said there was too much regulation and interference in the hiring and firing process.
“This may refer to benefit levels in unemployment insurance or rules in regard to hiring and firing. One conclusion is that more generous unemployment benefits give rise to higher unemployment and longer search times,” said the academy in the citation for the award.
Recognition of the value of research on this topic should be applauded, in particular in current economic climate.
As it is widely observed and commented on, we are living at a time when the baby boom generation has reached the retirement age, which means a great leap in the numbers of pensioners whose pay checks will have to be supported by a shrinking workforce in a system which finds it hard to generate employment.
Add to that the sometimes over-generous employment insurance benefits, also financed largely by the working population, you have a double hump on the man who goes to work every morning.
This is not to say that employment insurance programs are useless or detrimental to the health of the economy, but when such a program offers the chance of maintaining a fairly decent standard of living for extended periods to the unemployed, it becomes an unintended deterrent in the job search process.
Of course, it is easier for governments, including our federal government, to improve the conditions of the employment insurance programs, like making it easier to become eligible for more generous benefits for a longer period of time.
It is probably more beneficial, too, because it is a handsome vote getter.
But it is not right.
What is right is the other option, that is, the governments taking the lead in investing in the economy to create employment.
The negative reaction to this suggestion is very clear: We are in a free market economy and government should have no role in acting as an employer.
Well, here is the answer to that criticism: The U.S government shed more than 100,000 jobs recently and it was on Monday, Oct. 11 that its currency, the mighty greenback, traded against the Japanese Yen at its lowest for the last 15 years.
On the other hand, it was officially confirmed last week that China, where public sector companies lead the industry, has now taken over from Japan as the world’s second biggest economy.
And also, let’s keep in mind that it is that very China which supports the greenback by holding more than $ 1 trillion in US government bonds.
— Mustafa Eric