Cognitive Biases and Workfare

That last post got me thinking about cognitive biases. Being in contact with the unemployed  makes you more miserable than otherwise, but not because it actually increases your chances of unemployment – it isn’t contagious. So people’s change in behaviour or happiness must be a result of new information or old information which they were previously choosing to ignore.

While Chris (and Layard) are correct, workfare or active labour market polices can be good things, the positive effects – lower inflation and higher growth – are diffuse and the negative effects felt by both those in workfare and who meet those in workfare. So it is possible that seeing what unemployment is really like, and the exploitative practices associated with workfare is new information for some people.

Alternatively, people choose to know less about unemployment than they could and unconsciously engage various cognitive biases to effect this. To this extent cognitive biases protect most people from the negative effects of unemployment.

This means that theoretically the left should welcome workfare, for it finally destroys the recent idea, codified by Thomas Friedman, that we need to build our own economy and that we can be in control of Brand Me. Thinking an individual is responsible for their own economy and economic position is fanciful. Just as blaming the unemployed for their plight is a variant of the fundamental attribution error so too is entrepreneurial fetishism. Calculus was invented twice at the same time; someone was going to invent a pretty mp3 player eventually; somebody was going to get social networking right, some ideas are just in the air. That doesn’t mean it doesn’t make sense to handsomely reward entrepreneurs, because it means we get a more pregnant air from which they pluck ideas, but it does mean we shouldn’t attribute too much genius or control to any one person or group.

That is standard fair on the left, waking up the sheeple…

…so it should be some consolation that workfare will work to either let the employed know how horrible being jobless really is, or will breakdown whatever protective cognitive barriers they’ve erected to protect themselves from those grim truths.

Cognitive biases can lead to sloppy policy so inasmuch as they protect individuals by imposing costs on others they are good things to eliminate but it has to be remembered that they do something useful by protecting people from unpleasant truths. So finding policies that break through them will not be unambiguously good but I hope they will eventually be good.


Workfare’s Impact on Those in Work

Consider these paragraphs:

Example 1:

She was put on a work placement with Superdrug over the Christmas holidays, unpaid. Just JSA and travel expenses. After the new year she was told by Superdrug not to go back, without any explanation.

Example 2:

Poundland requested two candidates a week to be “inducted”. They then spend the next two weeks stood up on the tills for JSA plus travel. At the end of the two week placement they are no longer needed and sent back to us.

Liberal Conspiracy reports the sort of experience that would make anyone angry and any employee worried about their employer’s conduct. Next consider this paragraph:

It is shown that, over all respondents, well-being is typically negatively correlated with others’ unemployment. However, closer examination reveals a distinct pattern in this correlation: the well-being of the employed is often lower when the unemployment rate of others is higher; on the contrary, the unemployed report higher levels of well-being as others’ unemployment rises. The psychological experience of unemployment is tempered by the labour market status of those with whom the individual is in close contact, as models of comparisons or norms would imply. This relationship could also help to explain the polarisation of work between households.

Andrew Clark‘s paper is proof of the old saying that “misery loves company” and conversely that “happy people hate the company of the miserable,” a saying less well known, but true nonetheless. The two excerpts are connected. Liberal Conspiracy has discussed the growing phenomenon of workfare, imported from Australia and the US but always intellectually popular with  the right of this country. Working for your crust of bread, ostensibly for your own good.

What has not been discussed so far is the effect of workfare on those in work. That’s understandable, workfare’s main problems impact those involved, but workfare’s impact will be even more penetrating than already reported, and harmful in ways not yet discussed.

There are two reasons higher unemployment makes the unemployed more happy, one it allows them to discount any feelings of personal failing – hey, there’s a depression! What can I do? – and two it means there are other people in the same circumstance with which they can socialise: Clark found a strong effect on the reported wellbeing of the unemployed when more than one unemployed person was at home with them because they could share household tasks and lessen the increase housework associated with unemployment.

Similarly, employed people surrounded by the unemployed report liow well being for a couple of reasons.  Predominantly though, it is caused by increased nervousness; caused by an increased recognition that their employment situation is precarious and that they too could become unemployed (from Chris: pdf, pdf).

By bringing the unemployed into closer contact with the employed workfare will reduce the wellbeing of the employed if it reinforces feeling of insecurity with respect to keeping a job and powerlessness over one’s employment prospects. Unfortunately, this appear to be exactly the sort of workfare we’re getting.

A workfare which worked, in which the unemployed were given skills and opportunities to find jobs themselves or massaged into jobs when this failed would raise the wellbeing of those newly employed by getting them a job and the wellbeing of those already employed by making them feel more secure in their job and the job market in general. Very little research has been done on what effect workfare has on the attitudes of those already working in firms making use of it, but anecdotally it appears workfare as currently practiced is hurting everyone.