A Recovery Stymied by Redistribution

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Public policy intended to make layoffs less painful actually made layoffs cheaper and more common.

By Casey B. Mulligan | The Wall Street Journal | Opinion | June 29, 2014 5:00 p.m. ET

This is adapted from remarks by University of Chicago economics professor Casey B. Mulligan on receiving the Hayek Prize on June 25 from the Manhattan Institute for his book “The Redistribution Recession”:

Why has the labor market contracted so much and why does it remain depressed? Major subsidies and regulations intended to help the poor and unemployed were changed in more than a dozen ways—and although these policies were advertised as employment-expanding, the fact is that they reduced incentives for people to work and for businesses to hire.

You probably heard about the emergency-assistance program for the long-term unemployed that ended only a few months ago after running for almost six years. But there is also the food-stamp program. It got a new name and replaced the stamps with debit cards. Participants are no longer required to seek work and are not asked to demonstrate that they have no wealth. Essentially, any unmarried person can get food stamps while out of work and can stay on the program indefinitely.

All of these programs have in common that they, like taxes, reduce incentives to work and earn. The cornerstone of “The Redistribution Recession” is to quantify the sum total of these incentives and their changes over time. That’s what I call the marginal tax rate, by which I mean the extra taxes paid, and subsidies forgone, as the result of working. Waves of new programs increased the typical marginal tax rate from 40% to 48% in two years.

There were new mortgage-assistance programs. People who owed more on their mortgage than their house was worth could have their mortgage payments set at a so-called affordable level—in government-speak, that means that you pay full price for your house only if you have a job and earn money.

There were new rules for consumer bankruptcy, with special emphasis on the amount that consumers were earning after their debts were cleared.

To read more: http://online.wsj.com/articles/casey-mulligan-a-recovery-stymied-by-redistribution-1404075655

From book information: http://www.amazon.com/Redistribution-Recession-Distortions-Contracted-Economy/dp/0199942218/ref=sr_1_1?s=books&ie=UTF8&qid=1404142375&sr=1-1&keywords=the+redistribution+recession

 Photo: Getty Images

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