Why Is Unemployment So High This Labor Day?

By Dr. Gerard Lameiro

In a detailed op-ed piece in The Wall Street Journal this week, Robert Barro shows why he believes unemployment would be significantly lower if unemployment benefits had not been extended from the standard 26 weeks to 99 weeks. His calculations indicate that unemployment might be under 7% right now if only the unemployment benefits had not been extended to 99 weeks. Is he right? Why is unemployment so high this Labor Day? In economics, we know that when we tax something, we get less of it. We also know that when we subsidize something, we get more of it. It’s just common sense. Taxing something like cigarettes discourages smoking because the price goes up for smokers. Similarly, if we subsidize something, we encourage it because we create an economic incentive for that activity. Incidentally, that’s why we shouldn’t tax income, savings and investment because that is essentially taxing economic growth. We want more economic growth and prosperity, not less. [more...]