Stripping the $300 jobless benefit robs workers and economic recovery

Even though Gov. Roy Cooper vetoed legislation that would have killed additional federal pandemic unemployment insurance (UI)—legislators claimed the extra money would have given unemployed people incentive to avoid work—that doesn’t mean the fight is over.

The legislation would have punished workers, but, more importantly, would have cut $72 million — $300 multiplied by 240,000, the number of people receiving UI—every week in federal funds that would have further stimulated North Carolina’s economy.

Carolina Commentary has covered, in a previous editorial, the benefits of unemployment insurance, which exceed costs by nearly a 2:1 ratio.

As the labor market transitions from extreme disruption to a post-pandemic jobs rebound, we should strap in for a bumpy ride. A fraction of the unemployed may opt out of work hoping to find better jobs: higher wages and benefits, a location near transportation and affordable housing, or safer working environments.

Unemployment insurance allows those without jobs to explore certifications, education, or training to improve productivity. Public health risks and worry about caregiving responsibilities, especially among women, are rampant and real. They’re stumbling blocks to economic recovery. Child care has constricted the return of mothers to the labor market. Childcare centers are struggling to find workers. Many have closed.

The money people receive doesn’t sit in a bank account. People spend it. The money fuels aggregate demand, which plummeted during the pandemic.

The “moral hazard” effects of unemployment insurance are well studied. The term moral hazard describes a public policy that encourages risky behavior; the risk in this case was presumably about failing to take a job because of a short-term cash cushion of $300. Researchers, however, have found unemployed workers in general value re-employment even with more generous UI benefits.

Some employers, especially in hospitality, as restaurants reopen and business booms, have reported labor shortages, but some find ways to attract workers. The 5th Street Group, a N.C. restaurant firm, raised its minimum wage to $15 per hour, and offers a “Tip the Kitchen” plan by which customers tip kitchen staff. The firm matches those gratuities up to $500 a day, according to news accounts. The firm says it isn’t raising menu prices: Anticipated savings from reduced turnover and training will offset costs. Other businesses could consider hiking pay.

The “disincentivizing” amount of $300 in expanded benefits that some policymakers think is generous enough to restrain labor market recovery has had only slight effects. Economists, most recently from the San Francisco Fed, have studied this moral hazard. Using data from the Current Population Survey, their analysis found only a small fraction of UI recipients would refuse an offer to return to work at their previous pay.

The CARES Act’s original $600 weekly UI supplement expired in July 2020; since late December, federal legislation has added $300 per week in payments, through Sept. 6, 2021. Based on prior research,  the $300 supplement likely reduces job-finding rates by no more than 3.5 percentage points (0.035), write San Francisco Fed economists Nicolas Petrosky-Nadeau and Robert G. Valletta.

They offer perspective: “One straightforward way to think about that number is that each month in early 2021, about seven out of 28 unemployed individuals receive job offers that they would normally accept, but one of the seven decides to decline the offer due to the availability of the extra $300 per week in UI payments. This implies a small but likely noticeable contribution to expanded UI generosity to job-finding rates and employers’ perceptions of worker availability in early 2021.”

 In other research, economists have found that post-pandemic workers are re-evaluating their lives. They may need to change jobs, for example, to find safer working conditions.

North Carolina’s jobless rate was 5% in April compared to a pandemic high of 13.9% in March 2020. Economist John Connaughton of UNC-Charlotte’s Belk College of Business forecasts the state will add nearly 200,000 jobs in 2021, an inflation-adjusted increase of 5.3 percent over 2020.

If there’s any moral hazard going on, it’s among lawmakers who feel overly cushioned by power and influence enough to rob others of opportunity.

The legislation would have punished workers, but, more importantly, would have cut $72 million — $300 multiplied by 240,000, the number of people receiving UI—every week in federal funds that would have further stimulated North Carolina’s economy.

Carolina Commentary has covered, in a previous editorial, the benefits of unemployment insurance, which exceed costs by nearly a 2:1 ratio.

As the labor market transitions from extreme disruption to a post-pandemic jobs rebound, we should strap in for a bumpy ride. A fraction of the unemployed may opt out of work hoping to find better jobs: higher wages and benefits, a location near transportation and affordable housing, or safer working environments.

Unemployment insurance allows those without jobs to explore certifications, education, or training to improve productivity. Public health risks and worry about caregiving responsibilities, especially among women, are rampant and real. They’re stumbling blocks to economic recovery. Child care has constricted the return of mothers to the labor market. Childcare centers are struggling to find workers. Many have closed.

The money people receive doesn’t sit in a bank account. People spend it. The money fuels aggregate demand, which plummeted during the pandemic.

The “moral hazard” effects of unemployment insurance are well studied. The term moral hazard describes a public policy that encourages risky behavior; the risk in this case was presumably about failing to take a job because of a short-term cash cushion of $300. Researchers, however, have found unemployed workers in general value re-employment even with more generous UI benefits.

Some employers, especially in hospitality, as restaurants reopen and business booms, have reported labor shortages, but some find ways to attract workers. The 5th Street Group, a N.C. restaurant firm, raised its minimum wage to $15 per hour, and offers a “Tip the Kitchen” plan by which customers tip kitchen staff. The firm matches those gratuities up to $500 a day, according to news accounts. The firm says it isn’t raising menu prices: Anticipated savings from reduced turnover and training will offset costs. Other businesses could consider hiking pay.

The “disincentivizing” amount of $300 in expanded benefits that some policymakers think is generous enough to restrain labor market recovery has had only slight effects. Economists, most recently from the San Francisco Fed, have studied this moral hazard. Using data from the Current Population Survey, their analysis found only a small fraction of UI recipients would refuse an offer to return to work at their previous pay.

 The CARES Act’s original $600 weekly UI supplement expired in July 2020; since late December, federal legislation has added $300 per week in payments, through Sept. 6, 2021. Based on prior research,  the $300 supplement likely reduces job-finding rates by no more than 3.5 percentage points (0.035), write San Francisco Fed economists Nicolas Petrosky-Nadeau and Robert G. Valletta.

 They offer perspective: “One straightforward way to think about that number is that each month in early 2021, about seven out of 28 unemployed individuals receive job offers that they would normally accept, but one of the seven decides to decline the offer due to the availability of the extra $300 per week in UI payments. This implies a small but likely noticeable contribution to expanded UI generosity to job-finding rates and employers’ perceptions of worker availability in early 2021.”

In other research, economists have found that post-pandemic workers are re-evaluating their lives. They may need to change jobs, for example, to find safer working conditions.

North Carolina’s jobless rate was 5% in April compared to a pandemic high of 13.9% in March 2020. Economist John Connaughton of UNC-Charlotte’s Belk College of Business forecasts the state will add nearly 200,000 jobs in 2021, an inflation-adjusted increase of 5.3 percent over 2020.

If there’s any moral hazard going on, it’s among lawmakers who feel overly cushioned by power and influence enough to rob others of opportunity.

Betty Joyce Nash reported for the Hendersonville Times-News and the Greensboro News & Record before moving to Virginia where she worked as an economics writer at the Federal Reserve Bank of Richmond. She co-edited Lock & Load: Armed Fiction, published in 2017 by the University of New Mexico Press; the anthology probes Americans’ complicated relationship to firearms. Betty Joyce Nash writes for Carolina Commentary. For more information, see www.bettyjoycenash.com

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