Comment by mos1 | Hacker News Reader

Comment by mos1 | Hacker News Reader

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what is the unintended consequence of a system that provides no assurances to workers during economic downturns?

It exacerbates the business cycle for very obvious reasons, and it also slows economic growth as it results in more conservative investment, and lower spending on the parts of both businesses and consumers alike.

The real world numbers seem to bear out that unemployment compensation of some sort is a good thing.

The real world numbers also seem to bear out that if an undue portion of that compensation must come from the former employer specifically, that it creates some unfortunate disincentives towards hiring in the first place, which reduce (or in extreme cases eliminate) the benefits.

In short, Patio1 is right in thinking that the French system has some drawbacks... but his claim that the French system is some sort of inevitable end result of worker rights is utter and complete rubbish. The problem is nothing to do with workers rights, and everything to do with the specific implementation.

Actually, a system that provides "assurances to workers" during a downturn might exacerbate the business cycle.

(This is the recalculation theory of business cycles.)

A recession is caused when resources are systematically devoted to suboptimal purposes. For instance, we built too many houses and we just discovered they aren't worth much.

A laid off construction worker, auto worker or buggy whip maker may think he can still get his old job back. Generous unemployment insurance allows him to wait around for a long time, hoping to get back a job similar to his old job. However, absent unemployment insurance, he would be forced to take whatever he could get, thereby shortening the recession.

(Note: this doesn't dispute your theory of more conservative investment/spending decisions, it's just another countervailing factor that must enter into the cost/benefit calculation.)

Generous unemployment insurance allows him to wait around for a long time, hoping to get back a job similar to his old job. However, absent unemployment insurance, he would be forced to take whatever he could get, thereby shortening the recession.

This isn't a cut and dry argument either. That said, it's the reason that some unemployment compensation packages include or are dependent on job placement services and/or retraining efforts.

If you simply provide people with moderate passive income, the likelihood that they'll use it to update their skill set and change the direction of their career depends on a whole host of variables (satisfaction at previous jobs, age, industry, amount and type of education, union membership, other cultural factors.)

As such, I'd agree that for some people, income without retraining or mandatory placement services has a deleterious effect, but this is in no way a universal phenomena.

The detroit auto worker is pretty much the poster child for the problem you cite. This is because they tend to be on the wrong side of every variable I mentioned (low satisfaction, high age, salaried employment, a contract industry, relatively low formal education, higher vocational education, union members, and likely to be part of a generation that feels they are "owed" jobs.)

That said, their existence doesn't demonstrate that the programs are an overall drain, because they aren't representative of the average unemployed worker. They're skewed negatively in every dimension that matters.

Their existence does, however, reinforce the value of retraining services and mandatory placement efforts as part of a maximally effective unemployment compensation program.

I wasn't trying to imply that unemployment is an overall drain, I was simply pointing out a countervailing factor. Overall, I really don't know how these various factors add up. I imagine the result varies widely from place to place, and it's a very difficult empirical question to answer.

In fact, ultimately I suspect that the variation from place to place is the exact opposite of what would be optimal.

As you say, Detroit auto workers are on the wrong side of every variable. I expect that they also vote for generous benefits. In contrast, a place with a hard working "get off your ass and get a damn job" culture will probably vote for stingy unemployment benefits even though generous benefits would not be (locally) harmful.

It's a bit of a flaw with a democratic system.

However, a proposed solution which addresses both aggregate demand and disincentives would be to make unemployment benefits as unpleasant as possible while still providing monetary benefits. For instance, we could create a social stigma around receiving unemployment benefits. Or we might require unemployed people to submit to weekly adversarial interviews about their job search at 3AM in a cold/hot building with no chairs.

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