Senior White House adviser Valerie Jarrett made a startling claim about the stimulative effects of unemployment while speaking at the Student Summit at North Carolina Central University in Durham, NC on February 21st. Watch the short video
[Transcript] “Even though we had a terrible economic crisis three years ago, throughout our country many people were suffering before the last three years, particularly in the black community. And so we need to make sure that we continue to support that important safety net. It not only is good for the family, but it’s good for the economy. People who receive that unemployment check go out and spend it and help stimulate the economy, so that’s healthy as well.”
Is this true?
Not according to economist David Mayer. Here is what Mr. Mayer says about unemployment and the economy:
When workers are unemployed, they are unable to produce output. According to the economist Arthur Okun, for every 1% that the official unemployment rate exceeds the natural rate of unemployment, there is a 2% gap between actual and potential real GDP. Given the GDP and unemployment figures from 2009, when actual output was $14 trillion and unemployment was 10%, and assuming a natural rate of 5%, actual output may have been $1 trillion to $2 trillion below its potential. By way of comparison, a $2 trillion output gap is like sacrificing the entire economic output of France.
The costs to the individual are heavy as well. An extended period of unemployment can wipe out a family’s personal savings and leave them in debt. Unemployment disrupts the normal flow of life and if prolonged can possibly lead to health and psychological problems for affected individuals. Also, the incidence of family violence is directly related to changes in the unemployment rate. Furthermore, periods of high unemployment are also associated with increases in the divorce rate and child abandonment.
Prolonged, pervasive unemployment is directly linked to crime and civil unrest. Areas plagued with persistent high unemployment are also plagued with both violent and property crime. A trip to America’s inner cities provides the anecdotal evidence for this. Much of the unrest in the developing world coincides with high rates of unemployment. It is a very rare day when someone takes the day off of work to riot or blow something up. Unemployment, it seems, creates the necessary condition for many of the world’s problems.
So, Ms. Jarrett, what is “healthy” about unemployment? The answer is nothing.