The federal government is doling out billions of dollars in unemployment benefits to try to entice people out of work to stay home and not go looking for jobs, but getting them back into the labor force when the time is right could be tough.
In a move driven by Democrats, Congress and President Trump last month approved a $600-a-week boost to unemployment checks nationwide, which works out to $15 an hour — exactly the minimum wage Democrats want to impose.
Those checks are so generous that they change the calculus for those who might be looking for work.
That is exactly what the country wants in a world of social distancing, where keeping people out of crowded business places is critical to slowing the spread of COVID-19, said Michael Farren, a research fellow at the Mercatus Center at George Mason University.
But a one-size-fits-all national policy will make it tricky to calibrate how and when to slim the checks when it’s time to get those folks back into the workforce.
Mr. Farren said the $600-a-week federal Unemployment Insurance (UI) bonus — which comes on top of whatever a worker was already entitled to from the state — raises the “reservation wage,” or tipping point at which they’re willing to leave the home to go to work.
“I would expect that many laid-off workers, whose expected income has increased due to the combination of state unemployment insurance benefits and the federal bonus, would indeed maximize the use of those benefits. It’s only rational, and both economic theory and common sense would suggest the same outcome,” he told The Washington Times.
Josh Bivens, research director at the Economic Policy Institute, agreed — though he said that’s to be praised since it gives workers more opportunities.
“Better UI means workers can look for better labor market matches and not jump into the first available opening, no matter how poorly-suited it might be for them,” he said, dismissing fears of disincentives hurting the economy.
“Over the next couple of months there are clearly going to be far more people interested in working than jobs available, so, any disincentive to job-search caused by the $600 seems not that important to us,” he said.
Mr. Bivens said a generous benefit is particularly important right now, when there’s a demand for essential workers, to make sure that large companies have to enhance wages to keep their employees on the job during the crisis.
Michael McKenna, a former White House official, said the $600-a-week number should have struck the GOP when House Speaker Nancy Pelosi insisted on it. The $15-an-hour minimum wage comparison was just too stark.
He wondered about a waiter who’d been making $900 a week at his job, but who now, thanks to the federal plus-up pockets more than $1,000 a week to stay home.
“Does a person like that go back to work right away, or does that waiter wait until the unemployment runs out? And the answer is, he waits until the unemployment insurance runs out because it makes no sense for him to do otherwise,” said Mr. McKenna, who now runs the firm MWR Strategies. “To assume people are going to come back to work in that circumstance, you’d have to assume they’re idiots.”
That debate is already raging in online forums such as Reddit, where a user posted a meme that he volunteered to be laid off: “Extra $600/week means I’ll make more on unemployment.”
Added another user by the name of Insertblamehere: “I know I’m still working and my coworkers laid off are going to be making double what I am at 9.25 an hour since I got downgraded to 30 hours because of less business.”
Others, though, said there was no way they’d have made the same exchange.
“You traded temporary money you’re gonna use to create a false comfort of living in exchange for consistent work and the peace of mind of knowing you’ll have a job for sure after,” retorted user 187ForNoReason. “Congratulations, you played yourself.”
User majestic_alpaca fingered the exact issue likely to face the economy.
“I have a friend who runs a very small non-essential manufacturing business. They had to lay everyone off but figured out a week later that they can be making face shields. Now they’re having trouble re-hiring their employees because they make more from unemployment than the company can afford to pay them,” he posted.
The country is setting records for jobless claims, with 6.9 million people filing the week of March 28, and another 6.6 million the following week.
The $600 per week federal plus-up lasts through July 31, while rules expanding who’s able to claim benefits at the state level lasts through December.
One of the more generous aspects of this round of benefits is that workers are allowed to self-certify that they are unemployed, even without officially being let go, said Mr. Farren. That could facilitate some workers who have a choice to file for unemployment, gambling that jobs will be there later to return to.
“But businesses that stay open during the crisis may adapt to maintain operations with fewer employees, meaning that the gamble may result in longer-term joblessness for the workers who left. It will be interesting to see how it plays out in the long run,” Mr. Farren said.
Unemployment programs are run by each state, and benefits usually vary dramatically, which is why the federal plus-up is so important.
The last economic crisis, the so-called Great Recession that followed the 2008 Wall Street collapse, saw the feds bolster unemployment benefits for two years for particularly hard-hit states — and they only ended because the GOP rebuffed Democratic attempts for more extensions.
Those demands are already popping up in this crisis.
Rep. Don Beyer, Virginia Democrat, said Congress needs to make clear the benefits will be around “as long as the crisis lasts.” He proposed automatic triggers built into the next piece of coronavirus legislation.
The office of Ways and Means Chairman Richard Neal, the Massachusetts Democrat who oversees unemployment benefits, didn’t return a message seeking comment.
Mr. McKenna said the higher unemployment was Democrats’ ante, tied to the GOP’s demands for federal assistance to go straight to small businesses in the new paycheck protection program. But Mr. McKenna said that might turn out to be a bad bet for Republicans if small businesses find the paycheck program isn’t a good deal.
The strategist said Democrats have now won paid family leave and paid sick leave in the “Phase 2” coronavirus bill, and established a de facto national minimum wage of $15 per hour in the “Phase 3” bill.
“The bottom line is Democrats have played this very well. They have used this problem as an opportunity to drive their agenda items,” he said.
Mr. Bivens, at EPI, said the $600 plus-up was the second-best alternative.
Better would have been a stronger Unemployment Insurance system to start with — one that could already replace wages for the length of a crisis.
“Coming out of this crisis, I sure hope for a more-generous UI system generally, but also one with the administrative capacity to be able to handle more-flexible temporary changes than the flat $600 we did this time,” he said. “But, you enter recessions with the social insurance system you have, not the one you wish you had. Given what we had, I think the extra $600 was an excellent idea.”