A blog from Tim Worstall at the Adam Smith Institute claims bizarrely that the way to cut unemployment is to cut unemployment benefits. That’s like blaming hospitals for broken legs – though I suppose that if there weren’t as many hospitals we’d not get to count the broken legs quite so thoroughly.
I threw together this graph fairly rapidly from OECD figures I had to hand: the axis on the left shows replacement ratios (how much unemployment benefits replace of salary during the first 60 months, assuming housing costs are allowed for), the bottom axis shows labour market participation, the points on the graph are all major OECD countries. If there is a relationship, it’s in the opposite direction to the claim made by the Adam Smith Institute. I’m sceptical, however, that there is a direct relationship. There is no good theoretical reason to suppose that unemployment benefits trump economic and social conditions in determining labour market participation.