The Redistribution Recession: How Labor Market Distortions Contracted the Economy

The Redistribution Recession: How Labor Market Distortions Contracted the Economy

by Casey B. Mulligan
     
 

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Redistribution, or subsidies and regulations intended to help the poor, unemployed, and financially distressed, have changed in many ways since the onset of the recent financial crisis. The unemployed, for instance, can collect benefits longer and can receive bonuses, health subsidies, and tax deductions, and millions more people have became eligible for food stamps.

Overview

Redistribution, or subsidies and regulations intended to help the poor, unemployed, and financially distressed, have changed in many ways since the onset of the recent financial crisis. The unemployed, for instance, can collect benefits longer and can receive bonuses, health subsidies, and tax deductions, and millions more people have became eligible for food stamps. Economist Casey B. Mulligan argues that while many of these changes were intended to help people endure economic events and boost the economy, they had the unintended consequence of deepening-if not causing-the recession. By dulling incentives for people to maintain their own living standards, redistribution created employment losses according to age, skill, and family composition. Mulligan explains how elevated tax rates and binding minimum-wage laws reduced labor usage, consumption, and investment, and how they increased labor productivity. He points to entire industries that slashed payrolls while experiencing little or no decline in production or revenue, documenting the disconnect between employment and production that occurred during the recession. The book provides an authoritative, comprehensive economic analysis of the marginal tax rates implicit in public and private sector subsidy programs, and uses quantitative measures of incentives to work and their changes over time since 2007 to illustrate production and employment patterns. It reveals the startling amount of work incentives eroded by the labyrinth of new and existing social safety net program rules, and, using prior results from labor economics and public finance, estimates that the labor market contracted two to three times more than it would have if redistribution policies had remained constant. In The Redistribution Recession, Casey B. Mulligan offers hard evidence to contradict the notion that work incentives suddenly stop mattering during a recession or when interest rates approach zero, and offers groundbreaking interpretations and precise explanations of the interplay between unemployment and financial markets.

Editorial Reviews

From the Publisher
"Much of the policy reaction to the Great Recession emphasized Keynesian effects on aggregate demand and downplayed individual incentives to work, produce, and invest. In contrast, Casey Mulligan's research focuses on how an expanded array of U.S. safety-net programs-food stamps, unemployment insurance, Medicaid, and housing/mortgage assistance programs-raised effective marginal income-tax rates especially for poor families. These diminished incentives to work help to explain the weakness of the U.S. economic recovery since the end of the recession in 2009 and also explain why Barack Obama is justifiably called the 'Food-Stamp President.' Hopefully, future government policymakers will deliver better results by learning from this important book." —Robert J. Barro, Paul M. Warburg Professor of Economics, Harvard University

"Professor Mulligan analyzes the question of why has labor supply remained low and unemployment remained high during the current recession. He finds that the expansion of government safety net programs along with their associated high marginal tax rates, decreases the economic incentives for labor supply. The question at issue is how much of the decrease in labor supply arises from these effects and their associated redistribution of income compared to the decreases in demand in sectors such as construction and manufacturing? He concludes that it is possible that nearly all or at least much of the decline in labor usage can be attributed to expansion of the social safety net. I highly recommend this sure to be controversial analysis of the effects of the Great Recession. Professor Mulligan has provided an innovative analysis of our current economic woes, which should cause most economists to rethink their views of what has gone wrong." —Jerry Hausman, McDonald Professor of Economics, MIT

"Casey Mulligan's The Redistribution Recession presents a heterodox perspective on the Great Recession. The book argues that redistributive and other policies enacted to help cushion the blow of the financial and housing market collapses have reduced incentives to work, and thus had the unintended consequence of significantly lengthening and deepening the recession. The rich set of empirical analyses that Mulligan presents in support of this argument challenges the view that the problem of recovering from the Great Recession remains solely one of insufficient aggregate demand. Moreover, the analysis will likely provide a foundation for future research on the Great Recession and how policymakers responded to it." —David Neumark, Chancellor's Professor of Economics and Director, Center for Economics & Public Policy, University of California-Irvine

"The endless campaign rhetoric on what to do about the recent recession left many wondering who or what was at fault. This book is an excellently researched attempt to provide an answer. Though the explanations and conclusions Mulligan presents are accessible to general readers, the methodology and econometric analysis require sophisticated training. This book provides a wealth of scholarly data and analysis...highly recommended."—CHOICE

"While by no means presenting the whole story (as Mulligan himself agrees), the book challenges many of the widely accepted views of the Great Recession... the book unquestionably presents serious economic analyses, thus taking the discussion to a more sophisticated level." —Journal of Regional Science

Product Details

ISBN-13:
9780199996421
Publisher:
Oxford University Press
Publication date:
11/02/2012
Sold by:
Barnes & Noble
Format:
NOOK Book
File size:
8 MB

Meet the Author

Professor of Economics, University of Chicago, author of Parental Priorities and Economic Inequality, weekly contributor to Economix blog for the New York Times

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