The myth of unemployment benefits depressing work

 

Five recent economic studies find no such thing is happening.

WASHINGTON POST

Through no fault of their own, 30 million jobless Americans just had their benefits slashed. Many may soon face eviction, hunger, bankruptcy.

Unfortunately, the White House and Republican lawmakers are in no rush to help. Instead, GOP officials have essentially accused these desperate families of being lazy welfare queens, choosing to remain on cushy government benefits rather than savor the dignity of work. 

As coronavirus cases surged in the spring, Congress passed bipartisan legislation that allayed some of the pandemic’s economic pain. One critical provision of that rescue effort, a $600 federal supplement to state-level unemployment benefits, expired last week. 

State benefits, on average, cover about 40 percent of the typical worker’s lost wages, says Michele Evermore, senior policy analyst at the National Employment Law Project. Given the extraordinary economic crisis, federal lawmakers wanted to “top up” state benefits so that workers would get close to 100 percent of their lost wages. 

Because so many states’ unemployment IT systems are ancient and decrepit, though, targeting a specific fraction of lost wages proved nearly impossible to administer. So Congress passed a $600 weekly supplement because it seemed about the right amount to make the average worker whole.

  motorist is handed a bag containing information about open positions at a drive-thru job fair in Omaha on July 15. (Nati Harnik/AP)[/caption]

That flat amount meant, however, that some workers would get total jobless benefits that exceeded what they used to earn in wages. And because the recession has hit lower-income workers especially hard, a majority of unemployed workers received more in benefits than they earned in their most recent paychecks.

Perhaps understandably, this prompted concerns that the benefits themselves might slow down the recovery, discouraging people from returning to work because being on the dole was too darn comfortable. Treasury Secretary Steven Mnuchin, in an interview Sunday, cited as evidence a study from University of Chicago researchers that, in Mnuchin’s characterization, “goes through all the people that are overpaid.” 

Almost immediately, one of the study’s co-authors, Peter Ganong, said no, that is not in fact what their analysis found. Their research did calculate that the median wage replacement rate is 134 percent (so, yes, more than the typical worker used to earn), but, crucially, the study did not look at whether these more-generous benefits discouraged work. 

Fortunately, at least five other recent studies examined exactly this question.

These analyses are by researchers at Yale; a group from the University of Illinois at Urbana-Champaign, University of Chicago and University of California at Berkeley; economists from the University of Pennsylvania, the Federal Reserve Bank of New York and Glassdoor; an economist at the University of Massachusetts at Amherst; and an economist at Evercore ISI.

Using a variety of government and private-industry data sets, they all concluded the same thing: The $600 federal supplement does not appear to have depressed job growth.

As the Yale economists summarized: “We find no evidence that high [unemployment insurance] replacement rates drove job losses or slowed rehiring.” 

The Evercore ISI economist, Ernie Tedeschi, also observed that in June, around 70 percent of unemployment recipients who resumed working had been receiving more from benefits than their prior wage — yet nonetheless returned to work.

 Why might this be the case? 

Because, as a recent survey of elite economists from the University of Chicago’s Initiative on Global Markets found, the main force holding back job growth is firms’ lack of interest in hiring, not people’s unwillingness to work at prevailing wages. With U.S. unemployment in double digits, job vacancies depressed and jobless benefits temporary, most workers don’t want to lose any shot they might have at reemployment.

To be sure, some employers have offered examples of individuals turning down jobs. But whether these workers rejected offers because of high unemployment benefits (vs. other factors, such as fears of infection or lack of child care) is difficult to parse. 

More important, despite these individual anecdotes, these studies all show that, on net, higher government benefits are not currently depressing employment. 

If anything, research to date suggests the federal benefit supplement has boosted macroeconomic activity and, therefore, likely supported hiring. That’s because these benefits have supported consumer spending, which in turn helps retailers, landlords and other businesses keep workers on their own payrolls. 

The goal of unemployment insurance is twofold, after all: compassion (help struggling families put food on the table and keep a roof over their heads) and stimulus (support consumer spending so the economy can recover more quickly). For both reasons, Congress should immediately renew this supplement — ideally in a form that links benefit levels to public health and economic conditions, and that phases out as the dual crises abate — as some Democrats have already proposed. 

Yes, at some point, Mnuchin’s fears about work disincentives may materialize, as the economy recovers and job opportunities become more plentiful. We’re nowhere near that point now.

 

Expanded unemployment insurance ends with tens of millions still out of work

 

On Friday, expanded federal unemployment insurance expired, putting an end to the $600-per-week benefit that has kept many Americans afloat through the historic economic crisis brought on by the coronavirus pandemic. [WSJ / Andrew Duehren and Te-Ping Chen] That expiration comes after a week of negotiations on a new coronavirus relief package that could renew unemployment benefits, with little headway apparent. As things stand, dueling proposals by the House and Senate are about $2 trillion apart. [Washington Post / Erica Werner, Jeff Stein, Seung Min Kim, and Rachael Bade] It’s unclear when more unemployment relief might be coming. Congress is traditionally out of session for a district work period in August, though House Majority Leader Steny Hoyer has indicated that he expects the chamber to return at some point next month to vote. [Twitter / Manu Raju] There are quite a few sticking points left to resolve before anything can get done. Among other issues, Republicans want to slash expanded unemployment insurance to just $800 a month rather than $600 a week, and they want liability protections for businesses to make the cut. [NYT / Emily Cochrane] Such protections would in many cases shield employers from lawsuits if their employees contract Covid-19 upon returning to work. But while Senate Majority Leader Mitch McConnell has taken a hard line on their inclusion, the White House position is less rigid. [Washington Post / Jeff Stein and Erica Werner] Negotiators are also at odds over how long renewed unemployment insurance should last: Republicans have pitched an expiration date of December 31, but Democrats hope to keep it in place into 2021. [CNN / Tami Luhby, Kelly Mena, and Katie Lobosco] Both parties, though, have expressed interest in bringing back one-time $1,200 direct payments to Americans, and even in expanding those payments to include adult dependents. The GOP plan calls for $500 checks to all dependents, and the Democratic plan for $1,200 checks. [Vox / Katelyn Burns] All signs point to the US economy being in dire need of more stimulus. It had its single worst quarter on record between April and June, with GDP falling by 32.9 percent. [CNBC / Jacob Pramuk] And American workers still need help: As Vox’s Li Zhou writes, the jobs that Republicans want people to go back to just aren’t there as the coronavirus outbreak continues unchecked, and about 11.9 million people could be facing permanent unemployment. [Vox / Li Zhou]