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Chapter 4: Q. 58 (page 264)

Reducing unemployment Will cash bonuses speed the return to work of unemployed people? A state department of labor notes that last year 68%of people who filed claims for unemployment insurance found a new job within 15weeks. As an experiment, this year the state offers $500to people filing unemployment claims if they find a job within 15weeks. The percent who do so increases to 77%. What flaw in the design of this experiment makes it impossible to say if the bonus really caused the increase? Explain your answer.

Short Answer

Expert verified

The problem in the design is that people may resign their jobs in order to receive the incentive, and these people will be more likely to look for work because they want to earn the bonus.

Step by step solution

01

Given information

We are given that a study was conducted to check will cash bonuses speed the return to work of unemployed people.

02

Simplify

All ones who proclaim for unemployment and seek employment within 15 weeks will receive a $500 incentive from the state.
We should point out that there are no limitations on who can file for unemployment, so it's feasible that someone who discovers about the incentive will intentionally resign their job and apply for unemployment in order to become eligible for the $500bonus.
Moreover, if those persons find work before resigning and claiming for unemployment, they will be hardly unemployed and hence will not miss any wages.It's also worth noting that you may sign, file for unemployment, and then be hired by the same employer again.
As a result, the problem in the design is that people may resign their jobs in order to receive the incentive, and these people will be more likely to look for work because they want to earn the bonus.
As a result, the % rise could be largely attributed to persons who are solely interested in earning the bonus.


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