After the U.S. Bureau of Labor Statistics reported that the number of newly employed Americans had risen by only 266,000 in April rather than the 1 million that had been forecast, many were quick to point to expanded unemployment benefits as the culprit.
As part of its response to the pandemic, the federal government has been adding a $300 weekly supplement to state payments to the jobless, and funding a huge expansion of individuals eligible for unemployment benefits. The generosity, critics say, is encouraging otherwise employable people to stay at home rather than work.
Business groups like the U.S. Chamber of Commerce blame the Biden administration’s continuation of expanded unemployment benefits of “paying people not to work.”
‘Incentive’ or ‘coercion’?
While the evidence is far from clear that the chamber’s claim is correct, politicians at the state and national level were not far behind. Republicans in Congress, many using the exact language of the chamber, excoriated the administration and demanded that the policy, scheduled to end in September, be eliminated immediately.
Republican governors in Montana, Arkansas, Mississippi and South Carolina announced that they would no longer accept the federal supplement payments.
Their decisions were cheered by some, but condemned by others.
“We are still in a pandemic,” said Kate Bahn, director of labor market policy for the Washington Center for Equitable Growth. “The idea of purposely taking away benefits from people to ‘incentivize’ a return to work is actually coercing people to go back to work when it’s unsafe to do so, when caregiving may be really uncertain, and when family members might still be getting sick.”
Weak labor supply
Since the jobs report last week, other data have surfaced that only seemed to reinforce the argument that people were choosing not to reenter the labor force.
The BLS on Tuesday released its Job Openings and Labor Turnover Summary (JOLTS) report, which revealed that at the end of March there had been 8.1 million open jobs in the country, the highest number since the agency began tracking the figure in 2000. That made the low number of new hires in April seem even more shocking.
In a statement to the press Tuesday, National Federation of Independent Businesses chief economist Bill Dunkelberg said, “Small-business owners are seeing a growth in sales but are stunted by not having enough workers. Finding qualified employees remains the biggest challenge for small businesses and is slowing economic growth. Owners are raising compensation, offering bonuses and benefits to attract the right employees.”
Typical unemployment benefits
Unemployment benefits in the United States vary significantly from person to person, as they are tied to the wages an individual was earning prior to losing a job. In normal times, unemployment insurance is designed to replace about half of a person’s income for up to 26 weeks, or about six months.
This makes the U.S. an outlier among developed countries. It is among the least generous in initial benefits and is the only nation in the Organization for Economic Cooperation and Development that routinely cuts off benefits after six months.
Prior to the pandemic, Americans eligible for unemployment payments received an average of $387 per week through state-administered programs, according to data collected by the Center on Budget and Policy Priorities, though that varied from as little as $215 in Mississippi to as much as $550 in Massachusetts.
Adding the $300 federal supplement to the average unemployment payment translates into an average payment of $687 per week, or the equivalent pay for 40 hours of work at an hourly wage of $17.17. In a country where the federal minimum wage is only $7.25 per hour, that inevitably means that some people receiving unemployment insurance payments are taking in more from the federal government than they would if they returned to low-wage jobs.
In addition to the supplement, the government’s pandemic response programs expanded the number of Americans eligible for unemployment and extended the time limit to 39 weeks. While only about 3.7 million Americans would be eligible for unemployment benefits under the pre-pandemic program, there were more than 16 million receiving some sort of unemployment assistance as of April 17.
Questions about the data
Some economists, while agreeing that there are certainly some workers for whom the more generous unemployment benefits are the deciding factor in not returning to work, say they simply cannot, by themselves, account for the difficulty employers report in hiring.
“I do think it’s possible that some workers are making the decision to return to work because of the unemployment benefits that they’re receiving. I wouldn’t want to overstate the importance of that number,” Stephanie Aaronson, vice president and director of the Economic Studies program at the Brookings Institution, said in a podcast interview last week.
Dean Baker, founder of the liberal Center for Economic and Policy Research, wrote in a blog post Tuesday that it is “not plausible” that the higher-than-usual unemployment benefit is what is making it difficult for employers to find workers.
He cited a trio of studies from earlier in the pandemic, when the federal supplement was $600, which found only a minimal effect on employment — in one case, between 0.2% and 0.4%.
“It is reasonable to assume that the effect of supplements that are half as large would be considerably smaller,” Baker said.
However, as certain as some economists are that the extra benefits are having little impact on individuals’ willingness to look for work, others are just as sure that the effect is beyond debate.
“The excessively generous unemployment benefits that are in place until September will keep workers on the sidelines, restricting employment gains and keeping wages artificially high,” Michael R. Strain, director of economic policy studies, at the conservative American Enterprise Institute, wrote in a May 7 article in Bloomberg Opinion.