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Wednesday, September 26, 2012

Mulligan: The Redistribution Recession -- How Redistributive Policies Have Destroyed Jobs (Especially for Less-Skilled Workers)

MulliganNew York Times:  Labor-Market Scars Left by Redistributive Public Policy, by Casey B. Mulligan (University of Chicago, Department of Economics):

The social safety net became more generous under Presidents George W. Bush and Barack Obama, and as a result massively altered employment patterns in the labor market.

I have explained in previous posts how public moneys have recently been used to help the unemployed, the poor and the financially distressed endure the recession, but at the same time have dramatically eroded incentives for people to maintain their own living standards by seeking, accepting and retaining jobs, as well as incentives for employers to create jobs that are attractive to workers.

My forthcoming book The Redistribution Recession [Oxford University Press, Oct. 2012] (see the introductory chapter online) quantifies those incentives and their changes over time in terms of marginal tax rates, which refer to the extra taxes paid, and subsidies forgone, as a result of working, expressed as a ratio to the income from working. ...

The group-specific incentive changes are measured (most recently in my paper “Recent Marginal Labor Income Tax Rate Changes by Skill and Marital Status“) on the horizontal axis in the chart below as percentage changes in the share of what people keep from what they earn, net of taxes paid and subsidies forgone. ...

NY Times Chart
The fact that marginal tax rates rose so differently for various groups means not only that redistributive public policy depressed the labor market but has also sharply, and arbitrarily, altered the composition of the work force in the direction of people who are married and more skilled.

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To borrow an old phrase, Mulligan is like a broken record.

Posted by: save_the_rustbelt | Sep 26, 2012 1:11:41 PM

If that's the best rebuttal, s_t_r, then I'll go with Mulligan's assessment.

If we need more reasons for job destruction, figure in minimum wage increases, multiple extensions of unemployment benefits, employer health care mandates, labor unions, growing federal debt with tax increase implications, no long-term tax policy, and an anti-business administration...which is like a broken record for blaming others.

Posted by: Woody | Sep 26, 2012 6:24:21 PM

That graph does not prove causation. Not even close. Simply that lower skilled/educated folks worked less and had lower marginal rates. Why did they work less? Because of the marginal rates? Seems dubious without more. (Perhaps there is more in the book).

Posted by: Skeptic | Sep 27, 2012 6:17:40 AM

This study would need to control for age. Married people tend to be older, at a different point in their careers.

The central challenge for progressive concepts like guaranteed income is that if the guaranteed income level is middle class the government can't afford to pay it from tax revenue AND phasing out the benefit creates prohibitively high marginal effective tax rates for low earners. It's just math.

Reducing the guaranteed income level reduces both the revenue needed and the effective tax rates. It also makes a policy statement that to have a middle class lifestyle you have to work.

Posted by: AMTbuff | Sep 27, 2012 10:46:17 AM