Motivated by Loss

Did you know that not paying people to not work encourages them to find work? Strange, but true:

Geologist Ignacio Zafra packed his bags in January after finding himself, aged 34, living at home with his parents in Madrid again. He lost his job in 2009 and, after just five job interviews in a year, decided to leave. His only offer had been a job as a door-to-door salesman, with no contract or guaranteed income.

“My unemployment benefits were stopped a few months ago, so I started thinking that emigrating was the best way to find a job that my own country won’t give me,” he said from his new base in Aberdeen. “I am a realist. I know that things are bad in the UK as well, but they will never be as bad as in Spain. The labour market here is much more active.”

See, he ran out of benefits, so he decided to do what was necessary to get work. What a concept.

“Salaries, working hours, conditions and opportunities to advance in your career are far greater here,” said 28-year-old Paula Mestre, who left her native Valencia five years ago and is now an IT consultant in Edinburgh.

It took her four months, with relatively poor English, to find a job – but six months later her salary had almost doubled and her company was offering her training. “They kept putting my salary up and giving me more responsibilities,” she said. “Spanish companies simply don’t invest in their workforce and people tend to work their whole life in one company.”

Both she and her Spanish husband, a dentist, are doing far better than they would in Spain. “We’re not thinking of going back. Why would I go? To join the dole queue?” she said.

Exactly. Tell me again why we think it is a good idea to turn unemployment insurance payments (aka “benefits”) into long-term funding for the jobless?

Why do we not understand the truth that a perverse incentive is still an incentive?