Downsizing Blog

Economic research has only a tenuous relationship to economic policymaking in Washington. President Obama’s new proposal to raise the federal minimum wage from $7.25 to $9.00 is a case in point. It would bad for workers and the economy, but the administration seems to be ignoring the large body of theory and evidence on the issue.

The Washington Times noted this week that the 2012 improper payment rate for unemployment insurance benefits was 11.4 percent ($10.3 billion out of $90.2 billion), according to U.S. Department of Labor data. The good news is that the figure is down from 12 percent in 2011. The bad news is that it’s still a pathetic waste of money.

A new essay on the negative effects of the minimum wage has been added to Downsizing Government's Department of Labor page. According to author Mark Wilson, a former deputy assistant secretary at Labor, "current proposals on Capitol Hill and at the state level to raise minimum wages could not come at a worse time." He notes that " While minimum wages may be a well-meaning attempt to help workers, economic research clearly shows that somebody must pay the price for any increase, and it is usually the least skilled and least fortunate among us." Wilson argues that policymakers should instead "focus on policies that generate faster economic growth to benefit all workers." 

Oklahoma Republican Sen. Tom Coburn released a report today on federal job training programs in his state. Here’s what Coburn’s intrepid staff found: duplication, waste, ineffectiveness, and stupidity. In short, the report is another example of how Washington is better at creating problems than solving them.

Citing Department of Labor data, CNNMoney reported today that the federal government and states overpaid an estimated $14 billion in unemployment benefits last year (about 11 percent of total benefits). The state of Indiana actually made more improper payments than it did correct ones, which has to be some sort of record for bureaucratic ineptitude.

The New York Times worries that “federal funds to train the jobless are drying up.” It’s not until the end of the article that the Times bothers to quote an economist who says that “Traditionally, we have found that job training has not been very effective for people who have lost their job recently.”

Like other government hand-out programs, the unemployment insurance system suffers from a substantial fraud problem. The Washington Post reports that 90 D.C. city employees and 40 former employees are being investigated for grabbing UI benefits to which they were not entitled. The cost of this fraud has been about $800,000 since 2009.

Extending the extra unemployment insurance benefits would be bad for the federal budget and bad for the economy, and there is a better long-term solution for unemployment than the current UI system.

A recent report from the U.S. Postal Service’s inspector general found that workers’ compensation costs for postal employees are unnecessarily high. The reasons according to the audit are stale federal laws and bureaucratic ineptitude at the USPS and the Department of Labor.

The Wall Street Journal reports on rising state and federal unemployment taxes at a time when unemployment remains high. Keynesian economists keep telling us that unemployment benefits have a stimulative “multiplier effect” on the economy. Unfortunately, that sticky little problem of the government having to suck resources out of the economy to pay for this alleged stimulus keeps getting in the way: