Excerpt from a Newly Minted MacArthur ‘Genius’

BY Paul Solman  October 2, 2012 at 6:04 PM EST


Photo by the MacArthur Foundation.

For a 33-year-old, Harvard economist Raj Chetty has a distressingly high number of accomplishments, to which he adds, today, the status of MacArthur “genius” Fellow. But in fact, people of good will should be anything but distressed by Chetty’s work for — in the tradition of his father who advised Prime Minister Indira Gandhi as India began to shift away from state socialism — his goals are to improve his country’s standard of living, especially for those at the lower end. Chetty’s country is the United States and his projects have ranged from the effect of taxes to education. The New York Times ran a story about a paper of his off the front page back in January: “Big Study Links Good Teachers to Lasting Gain”. There is more about his work here and here.

Making Sense

We interviewed Chetty about unemployment insurance in 2010. The complaint, then and now, was that the program discouraged workers from taking a job. Chetty’s point: how often workers are themselves discouraged from taking UI. Here’s a brief but memorable excerpt from that story.

RAJ CHETTY, economist, Harvard University: The fraction of people who are eligible for unemployment benefits and actually receive them varies significantly across states, and is only about 65 percent or 60 percent, on average, in the U.S. Now, that’s particularly striking when you compare it to the numbers in Europe, where that number is more like 95 percent or 97 percent.

PAUL SOLMAN: Ninety-five percent to 97 percent of people in Europe take unemployment insurance, only 60 percent to 65 percent here in the States?

RAJ CHETTY: Yes. The rules are arcane and complex. And what should you be doing when you lose your job? Looking for another job and trying to manage, right, not figuring out the unemployment insurance system rules.

PAUL SOLMAN: As for Florida, almost half of the eligible unemployed are getting no insurance payments, though employers are required to have paid their premiums in full. In fact, that may be part of the problem. It pays for a company to challenge a worker’s claim.

RAJ CHETTY: When you lay off lots of workers, as a company, you have to pay higher unemployment taxes. Employers have an incentive to try to contest individuals’ unemployment benefit claims, because they are paying part of the cost of those unemployment benefit claims.

And how would you do that? You try to claim that you fired the employee for cause, rather than laid the worker off, or that the person quit.

This entry is cross-posted on the Making Sen$e page, where correspondent Paul Solman answers your economic and business questions