By: Sam Humphrey

University of Chicago Professor Casey Mulligan visited Suffolk University Nov. 5 to discuss his new book The Redistribution Recession: How Labor Market Distortions Contracted the Economy, which became a standing room only event, packed tightly with students and professors.

Mulligan’s book examines why the labor market continued to shrink (put another way, why unemployment continued to rise) after Obama’s stimulus package spent hundreds of billions of dollars to put Americans back to work.

The lecture, titled Have Obama’s Economic Policies Worsened the Recession?, was jointly sponsored by Suffolk’s Economics Department and the Beacon Hill Institute, the  school’s economic research center.

In the aftermath of the 2008-2009 recession, as the economy slowly began improving, Mulligan wondered why labor market participation had not steadily increased after falling during the recession.

After he researched the effects of Obama’s stimulus plan, Mulligan found that it increased the costs of doing businesses, and that businesses laid off workers that they needed as the costs of employment made hiring and retaining workers prohibitive.

He found that   “redistributing incomes through social safety net security programs and minimum wage hikes also contracted the labor market,” as they increased the costs of doing business and decreased profits.

Supporting his theory is the economic law that the more governments do to subsidize the poor and unemployed,  it leads to more people either becoming or staying poor or unemployed. This is because government subsidies take money from the employed, making their efforts less rewarding, and distribute it among the unemployed, who do not feel the urgency to find a job while receiving some benefits, Mulligan said.

“Not that we should end all [government aid] to the lower class and the unemployed,” Mulligan said. “We just have to know there is a tradeoff when governments start or expand these programs, and we have to be aware of that” when legislators create policies.

Mulligan also found that several attempts by the government to slow or reverse the rate of lay-offs backfired. Congressional bickering over the New Hires Tax Credit kept employers from hiring until the bill passed. Employers did not hire even after the bill failed.

“The outlook for the labor market isn’t clear,” Mulligan said. “But as long as tax rates stay high, the labor market participation will stay low.” He also noted that the Affordable Care Act would likely hinder labor market growth.

However, while Mulligan found that Obama’s economic policies did not help the economy as much as some estimates predicted they would, he did not put the blame for the long recession squarely on Obama.

“If you look back, there were other policies passed before Obama took office that would later hinder” labor market growth, he said, most notably bills passed during George W. Bush’s presidency.

After his lecture, he took a poll among attendees, asking how many thought Obama’s policies had helped the economy recover, how many thought it had hurt the economy, and how many were unsure. A roughly equal number of respondents thought the stimulus had either helped or hurt the recovery, but the vast majority were unsure, highlighting the complexity of governmental policies and the many factors affecting the economy.