Republicans call the $600 unemployment boost a disincentive to work. Many experts disagree – CNBC - Freelance Rack

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Monday, August 3, 2020

Republicans call the $600 unemployment boost a disincentive to work. Many experts disagree – CNBC

U.S. Treasury Secretary Steve Mnuchin and White House Chief of Staff Mark Meadows at the U.S. Capitol on Aug. 1.

Stefani Reynolds/Bloomberg via Getty Images

A $600 boost to weekly unemployment checks ended Friday, leaving many families wondering how to pay for rent, food and other bills this month.

Democrats want to extend the payments, yet Republican lawmakers have put up a roadblock to continuing the aid. They call it a disincentive to work, since some workers can make more from unemployment than their old jobs.

“There’s no question, in certain cases where we’re paying people more to stay home than to work, that’s created issues in the entire economy,” Treasury Secretary Steven Mnuchin said in an interview Sunday on ABC’s “This Week.”

However, mounting evidence suggests this argument  may be flawed— and it’s one that is currently holding up negotiations on another relief package.

Philosophy or fact?

The $600-a-week supplement hasn’t been a disincentive to return to work and hasn’t stifled recruiting by employers during the current recession, new research suggests.

In fact, Americans receiving the subsidy are pumping money into the economy and supporting jobs, according to a number of economists. Ending the aid would cripple the U.S. economy as a result, they argue.

“I’m not surprised at all that studies are finding that,” said Till von Wachter, an economics professor at the University of California, Los Angeles and director of the California Policy Lab. “[Republican] concern is more borne from a philosophy and not facts.”

Roughly 30 million Americans were collecting unemployment benefits as of mid-July, according to the Labor Department.

Many out-of-work individuals were having trouble paying their rent and buying enough food to eat prior to losing the extra $600, according to weekly surveys conducted by the Census Bureau.

$321 a week

Ending the federal supplement will leave Americans with $321 a week in state benefits, on average.

The GOP believes ending or reducing the aid will bolster the economy by incentivizing people to return to work.

The $600 lets about two-thirds of people eligible to collect unemployment insurance make more from jobless aid than from work, according to economists at the University of Chicago. Around 20% could theoretically double lost earnings, they found.

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The dynamic primarily affects low- to middle-income workers. (A $600 flat payment is a larger pay increase for someone who makes $300 a week versus $1,200 a week, for example.)

The economic logic against this generosity is simple: Someone who can make more from unemployment will be more likely to stay unemployed than find a job.

In a normally functioning labor market, that might be true, economists said. The unemployment system has never before paid Americans more than 100% of their lost earnings, making a direct historical comparison impossible.

But this theoretical dynamic hasn’t had the negative labor effect Republicans fear, according to studies published over the last few weeks.

‘Rate race’ for jobs

One, by economists at Yale University, found that workers who got a bigger boost in take-home pay due to the $600 unemployment subsidy returned to work at similar rates as others who got a lower relative bump in pay.

Ernie Tedeschi, an economist at Evercore ISI and former Treasury official, similarly found that “there is no evidence” that the $600 supplement influenced people to find or leave a job.

His analysis examined data from May and June, when the U.S. economy added a record-breaking 7.5 million jobs.

Research also suggests that employers, in the aggregate, didn’t have trouble recruiting workers for job openings — as one might expect if workers were opting to stay home to collect unemployment benefits instead of finding a job.

This is a function of a mismatch between the number of unemployed individuals and job openings.

Hispanolistic | E+ | Getty Images

In May, there were four unemployed workers per job opening, according to the Bureau of Labor Statistics. There are currently about 14 million more unemployed workers than jobs, according to the Economic Policy Institute.

Other research shows some evidence of a decline in job applications linked to the $600 unemployment benefit, but not enough to make up for there being “very few jobs out there,” said Ioana Marinescu, an assistant professor of economics at the University of Pennsylvania and one of the study’s co-authors.

Job vacancies decreased by 64% during the pandemic, while job applications only decreased by 21%, according to the study, published July 30 by Marinescu and economists at the Federal Reserve Bank of New York and Glassdoor, a jobs and career site.

As a result, the number of applications per job increased during the downturn, meaning businesses had a larger pool of workers from which to choose — a kind of “rate race” for jobs, the research found.

Drag on the economy

A decline in job applications tied to the $600 unemployment benefit might be actually good for social welfare by reducing excess competition for jobs, Marinescu said.

“It’s actually kind of correct” when Republican lawmakers say increased unemployment generosity decreases work-search efforts, she added. “But it doesn’t matter in the current state of the labor market,” Marinescu said. “It’s focusing on the wrong thing.

“It’s not relevant at all in the current context.”

Of course, this isn’t to say that zero businesses have reported recruitment difficulty or that no unemployed people have stayed on the sidelines as a result of generous benefits.

These studies look at employment in the aggregate. So, on the whole, the U.S. economy isn’t worse off because of the $600-a-week benefits.

And economists generally agree that an extra $600 a week could hurt the economy in a healthy labor market when jobs are widely available.

“Our baseline assumption then is that it would be some time before [the payments] would risk being a binding drag on the recovery,” according to the Yale study.

Plus, generous unemployment likely isn’t people’s only motivating factor in staying home, either, economists said — health fears, workplace safety and child-care duties may play greater roles for some individuals when weighing whether to return to work.

Evidence suggests that the extra $600 is helping prevent a further collapse of the U.S. economy.



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