The Destruction of Unemployment Benefits
As federal unemployment benefits reach expiration in a few days, false narratives prevent a needed fix
Publisher’s Riff
More special analysis at #RealityCheck on WURD every Mon - Thur, 10am - 1pm ET LIVE at wurdradio.com or WATCH the 7.23.20 edition on WURD TV at facebook.com/forwurdor LISTEN each day by WURD app. Also: wear your B|E tee today!
There is no rational economic logic supporting the destruction of unemployment benefits, especially during a pandemic when the unemployment rate is so high. It’s simple: fewer people making money are fewer consumers propping up an economy largely driven by … consumer activity. What’s the purpose of pushing the economy to “reopen” if fewer people are there to, literally, buy into it?
This is what makes Senate Republican and White House resistance to the extension of current pandemic-triggered federal unemployment benefits strange. Those benefits expire on July 31st - and, as of this date, no agreement has been reached in Washington as to what happens next. Senate Republicans have, instead, put a proposal on the table that significantly reduces the now $600 weekly payment down to $200 - from an average $2,400 monthly to now just $800. In the meantime, the Republican rush to reopen at all costs, including lives, continues full steam ahead. But, how can you sustain a reopen economy when nearly half the nation’s population is unemployed and living tight as a result?
And: if consumer spending is what really props up the economy, and both Senate Republicans and the White House claim to want to protect economic growth, why would they actively try to stifle that growth by taking money out of needed consumer hands? Even economists, for the most part, agree that keeping the federal unemployment benefits in place now - or, perhaps, expanding it - is good for the economy, as shown in a recent assessment of economist views at FiveThirtyEight …
But in the latest installment of our regular survey of quantitative macroeconomic economists,1 conducted in partnership with the Initiative on Global Markets at the University of Chicago Booth School of Business, the 33 economists in our study collectively thought there was a 59 percent chance that either keeping the payment steady or increasing it to above $600 per week would be most beneficial to the economy. They said there was about a 33 percent chance that reducing the weekly payment to less than $600 would most benefit the economy, and only a 7 percent chance that letting the program completely lapse would be most beneficial. This makes sense considering that another recent IGM survey found that most economists blamed high unemployment on companies that weren’t hiring — not on people choosing not to work because of unemployment payments.
Republican reasoning behind a draconian cut in benefits is based on the fast spreading assumption that the $600 weekly payments combined with separate state benefits are so generous, the unemployed just don’t want to work. Mostly anecdotal reports pour in of frustrated employers complaining that potential workers currently on unemployment don’t want to work or have outright rejected job offers. Republicans keep selectively citing the parts in a recent Congressional Budget Office study that notes …
[r]oughly five of every six recipients would receive benefits that exceeded the weekly amounts they could expect to earn from work during those six months.
or
The estimated effects on output and employment are the net results of two opposing factors. An extension of the additional benefits would boost the overall demand for goods and services, which would tend to increase output and employment. That extension would also weaken incentives to work as people compared the benefits available during unemployment to their potential earnings, and those weakened incentives would in turn tend to decrease output and employment.
But, here are the ignored points in that same report …
The nation’s economic output would probably be greater in the second half of 2020 than it would be without the extension of the increase; in calendar year 2021, however, output would be lower than it would be without the extension. Employment would probably be lower in the second half of 2020 than it would be if the increase in unemployment benefits was not extended; in calendar year 2021, employment would be lower than it would be without the extension
CBO is simply saying: yes, unemployment benefits shouldn’t last forever (they weren’t designed to). But, if the economy needs an immediate boost from “output” (consumer spending), a scenario without unemployment benefits helping consumers purchase necessities would indeed lower growth.
Other reports, like this one cited by CNN, fail to - or don’t want to - cite that aspect of the CBO report or allow partisan-slanted advocacy groups, like the long time Republican-run National Federation of Independent Business, to astroturf through their journalism …
Small business owners say they are having trouble convincing employees to come back or hiring new ones. Nearly one in five have had an employee decline a job offer because he or she wanted to remain on unemployment, according to a May survey by the National Federation of Independent Business Research Center.
That’s an advocacy group’s surveyed speculation based on primarily personal observations from business owners, the demographic they represent. But, there’s no effort to unpack the evidence clearly showing needed output boost from the expanded benefit - at least until suddenly uprooted workers and households get back on their feet, which is what CBO was concluding in so many words. There is also no data that’s empirically showing a trend or pattern of expanded unemployment benefits discouraging people from finding work, data not explored or presented in either this recent CNN piece passed off as complete or this hustled NBC Think piece by Heritage Foundation (another Republican-established and run advocacy “think tank”) “research” posing as fully credible.
Neither of these pieces, or the claims from Republican lawmakers and Trump administration officials, are relying on any credible evidence, however. First: no one, including those who created the $600 benefit, were suggesting it would last in perpetuity. Second: lack of worker interest in certain jobs because they’re collecting unemployment is not laziness, it’s just common sense and commentary on pervasive low wages in the marketplace - who would want to threaten themselves with added financial instability by taking a low wage job that pays less? There’s nothing wrong, or illegal, about prospective employees sorting through their options for the most viable job with livable wages.
Third: none of the questionable assertions above are offering the Federal Reserve Bank of Chicago’s detailed research into the issue. The omission of that research is convenient for UI benefit critics because the conclusions are fairly strong …
Nevertheless, we find that those currently receiving UI benefits search intensely for new work, and their effort appears to be somewhat greater than that of the unemployed not receiving benefits. At the same time, once individuals exhaust their benefits, their search effort drops precipitously. Finally, those collecting UI benefits tend to receive better job offers than those who have exhausted their benefits. This may be because the quality of job offers declines the longer an individual is unemployed. Regardless, both groups receive poorer offers than the employed or those currently out of the labor force.
These results challenge the notion that collecting unemployment benefits reduces job search. Those collecting UI benefits actually search the hardest among all the groups we studied. If anything, search effort declines once individuals exhaust their benefits. Furthermore, individuals collecting benefits tend to receive better job offers than those who are not collecting benefits. In contrast, those who exhaust their benefits both receive and are willing to accept lower-paying job offers, suggesting that UI benefit exhaustion may have detrimental effects on employment outcomes.
In essence, no one - including the creators of an enhanced federal benefit - intended for or even suggested a $600 weekly stipend would be permanent. It’s purpose was to help carry Americans through a pandemic that took everyone by surprise. To suggest otherwise is deliberately misleading the public into believing outlandish racist and income-shaming tropes about certain demographic groups being less motivated to work and succeed. That’s not the case.