Moneybox

Unemployment Benefits Are Definitely Keeping Some People From Going Back to Work

And that’s fine.

A help wanted sign is displayed outside of a business near the boardwalk days before the Memorial Day weekend, the unofficial start of summer, in the shore community of Wildwood on May 27, 2021 in Wildwood, New Jersey. Wildwood, like many beach communities throughout the United States, is looking for a successful and busy summer season after staying mostly closed or partially open last summer due to Covid-19 restrictions. Many resort community retail businesses are also suffering from a shortage of labor as some workers are choosing to stay home and others have changed career paths.  (Photo by Spencer Platt/Getty Images)
We’ll keep using these “help wanted” pictures until America gets back to work. Spencer Platt/Getty Images

America’s restaurant owners spent much of the spring complaining that they couldn’t hire enough staff, because workers were choosing to stay home and collect unemployment benefits instead. So in May, more than two dozen states, all but one led by Republicans, announced that they would withdraw early from the generous federal jobless aid programs that, among other things, added $300 a week to normal state benefits. Meanwhile, a New York Times survey found that 52 percent of Americans think it’s time to wind the extra benefits down.

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All of this has raised a number of questions. Some are just factual: Were business owners right in their complaints, or were they blowing a small issue out of proportion (and being salty over having to pay their workers more)? Are businesses hiring faster in states that cut off benefits early? Others are more moral judgements: Is it actually a bad thing if people can take their time going back to work, even if they could find a job now?

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We probably won’t have firm answers on the big, factual mysteries for a while. But as more labor-market data and surveys have trickled in, we’ve started to get a slightly clearer picture of what’s been going on. It mostly fits what a lot of people would probably have guessed based on common sense: Yes, some people are definitely opting to keep collecting unemployment aid instead of a job, but there are a lot of other factors affecting the labor market right now, too, including the lingering impact of COVID.

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To start off, hiring has definitely been a bit slower than economists would expect based on the number of job openings at the moment, even after June’s improved job numbers. The internet is basically overflowing with help-wanted ads right now, and based on that sheer volume, you would expect about 29 to 34 percent of the unemployed to be finding a job each month, according to Harvard economist Jason Furman. Instead, only about 24 percent are, leaving about a million fewer people employed.

job finding
Peterson Institute for International Economics
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We also know that at least some Americans are taking their time going back to work because they have UI to fall back on. How? Because they’ve said so. The Hiring Lab at online job board Indeed.com recently surveyed 5,000 Americans about whether they’ve been hunting for work lately. Among the unemployed who were even interested in work, most said the weren’t searching urgently, with about a tenth of that group saying unemployment benefits were one of the reasons why. It wasn’t the only reason by any stretch—COVID fears and family care ranked higher—but it was a major one.

Whatever
Indeed.com
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Exactly how much have extra unemployment benefits slowed down hiring, though? The honest answer is that we don’t know. A recent study by economists at the Federal Reserve Bank of San Francisco suggested that the extra $300-a-week benefit might be shaving 3.5 percentage points off of the rate at which Americans are finding jobs right now, or a bit more than a quarter of the shortfall Furman identifies. But it’s not clear how reliable those findings are, since they are based on an estimate of how unemployment affected the labor market back in 2020, which the researchers just extrapolate forward.

It also isn’t clear whether cutting off benefits early is making Americans go back to work much faster. The unemployment rolls do seem to be falling more swiftly on average in states that have decided to withdraw early from the federal unemployment programs, as the Wall Street Journal recently noted. But if you look closely at the numbers, the picture gets more complicated. Of the 10 states where continuing claims for regular unemployment insurance benefits have declined quickest since late April, only five have opted to end the extra $300-a-week top-off ahead of schedule, suggesting at the very least that there are other important factors determining how speedily states are recovering.

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Unemployment stuff
Jordan Weissman/Slate

So super-deluxe federal unemployment programs are probably slowing down the pace at which people are going back to work, though how much is still a bit of an open question. In a year or so, I’m sure some economist will have semi-precise estimates of how it affected things, by which point the whole argument will largely be academic.

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Even though I’ve just devoted the better part of an article to it, the slightly abstruse, technical debate over the exact extent to which unemployment insurance has kept people from taking jobs may just be a bit less important in the end than the ethical one about whether we should care. Obviously, business owners who’ve been struggling through the pandemic are frustrated, and some of them may be losing needed revenue because they can’t staff up fully. The federal government is likely supporting some people who could easily find a job at this juncture, which as the Times’ poll shows clearly rubs many voters the wrong way. But in the grand scheme of a pandemic response, those issues hardly qualify as disasters. Meanwhile, the UI scheme is still clearly benefitting a large number working-class Americans, by taking a financial burden off of parents who still need to stay home with their children and giving the jobless time and leeway to look for new work that suits them. And insofar as unemployment payments have made it a bit harder for businesses to hire, they’ve also given workers leverage to get some badly needed raises, especially in the hospitality industry, where wages have spiked. There are obviously some ghouls who are mad that their burrito bowl is about to cost 4 cents more as a result. But personally, I just can’t get that upset about it.

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