The GOP’s One Big Excuse for Cutting Off Unemployment Benefits Isn’t Even True

A waiter wearing a mask and gloves delivers food to a table to customers seated at an outdoor patio at a Mexican restaurant in Washington, DC, May 29, 2020. - Friday marks the beginning of phase one in the city with restaurants reopening following the stay at home orders from the COVID-19 pandemic, provided they can serve customers outdoors with groups sitting at least 6 feet apart. (Photo by SAUL LOEB / AFP) (Photo by SAUL LOEB/AFP via Getty Images)
It turns out, people are willing to work even when there are generous unemployment benefits on the table. Saul Loeb/Getty Images

Republicans in Congress have a simple excuse for why they don’t want to extend the $600-per-week federal unemployment benefits that are scheduled to expire at the end of July: The money, they say, will discourage Americans from going back to work, and slow down the country’s reopening, since businesses won’t be able to rehire staff.

On a moral level, this position is mean-spirited at best, since it implies that we should be forcing low-wage service workers back onto the job and risk lung death in the midst of a pandemic that is presently exploding out of control across the entire Sun Belt, just so they can make rent. From a macroeconomic perspective, the argument is dicey as well, since pulling the plug on aid would hurt consumer spending and potentially put millions of jobs at risk. (I mean, if you want people to go out to the Galleria to shop, they need money. That’s science.)

And to top it all off, it’s not even clear that the super-deluxe unemployment-insurance scheme that Congress created in March is actually making it much harder for businesses to hire at the moment.

(Standard disclosure: I am conflicted out the wazoo on this topic, since Slate is participating in state work-share programs, which allows its employees to receive federal unemployment benefits while working reduced schedules.)

It’s true that right now, many Americans are collecting more money on unemployment than they earned while working, thanks to the $600 federal benefit Congress put in the CARES Act. In theory, that cash could be a powerful disincentive to return to their job—why go back to the grind when you can make more staying at home with your family?—and in fact, the Congressional Budget Office forecast that the payments would depress employment in 2021.

But when they’ve actually looked at the data so far, economists have found scant evidence that unemployment payments are presently having a large impact on the job market. If they were, you would expect hiring to be faster right now in states where benefits are skimpier compared with what people earn working. It’s not obvious that that’s the case. Evercore ISI’s Ernie Tedeschi—Twitter’s favorite source of speedy macro analysis—found that between April and May, unemployment dropped slightly quicker in states where UI was less generous compared with the typical wage, but the difference wasn’t statistically significant. In a much more formal draft paper recently presented at the Brookings Institution, a group of economists found that there were fewer layoffs and rehiring actually seemed to be going faster in states where benefits were relatively more generous. Likewise, they found that at small businesses, employee hours collapsed further and have recovered slower in states where unemployment benefits replace a smaller share of the typical wage. “This is the opposite of the pattern one would expect if either were importantly driven by labor supply responses to UI generosity,” the paper notes.

Hours at small businesses
Replacement rates refer to the share of an unemployment recipients’ old earnings covered by their jobless benefits. Bartik, Bertrand, Lin, Rothstein, Unrath, 2020

Why wouldn’t unemployment benefits effect on hiring much, when it seems logical that they might? The most obvious explanation is that, for the moment, labor supply isn’t really a problem for the economy; labor demand is. Businesses are hiring slowly, because the coronavirus is still ripping through the country and they are only able to partially reopen.

These findings are not definitive. You can certainly find anecdotal examples where super-deluxe UI is making life more difficult for businesses; on Friday, for instance, the New York Times reported on how some local merchants are finding it hard to hire seasonal workers in Rehoboth Beach, Delaware. But in the end, there just isn’t good empirical evidence that unemployment benefits are much of a drag on rehiring at the moment, and for every saltwater taffy shop owner who says he can’t find enough staff, there seem to be plenty of everyday examples of employees who’ve gone back to their old jobs even though it meant a pay cut. Some might feel like they’re forced: Workers risk losing their benefits if they turn down a job offer. Others are doing it it by choice: As one restaurant server in Delaware put it to the Times, “I’m a go, go, go personality.”

What this means is that the argument against extending the CARES Act’s unemployment benefits is supremely weak. They are not obviously hurting rehiring in states that are reopening. More importantly, it seems very obvious at this point that the economy will not get back to normal, and there will not be jobs for everybody who wants one, until the virus has been contained. Even states like Florida and Texas that were eager to reopen are being forced to reverse course now as infections have surged. Rather than worrying about whether people want to go back to work, we should be worrying about taking care of people who simply can’t.