Recent Studies Show Increased Unemployment Benefits Do Not Deter Workers

By Brian Skinner, Esq.

Economists generally agree that the $600-a-week Pandemic Unemployment Compensation supplement that went to the 32 million Americans in March as part of the CARES Act, kept the economy functioning through the COVID-19 pandemic. Economists at the University of Chicago estimated that more than two-thirds of the workers on unemployment insurance were making more in jobless benefits than they did at work — in some cases two to three times as much. Unemployed individuals and families used the extra benefits to pay rent, buy food and cover medical, utility and credit card bills when many businesses where closed by Stay-at Home Orders.

However, despite the benefit to the economy, some have argued, especially those businesses finding it hard to fill vacancies, that the supplemental benefits actually discouraged people from taking jobs. The argument seems to make sense. As noted above, supplemental benefits resulted in nearly seven in 10 jobless workers getting more from the government than from their previous employer. And, one-third of small-business owners surveyed by the National Federation of Independent Business said the supplement made hiring harder. 

Although, these supplemental benefits ended in July, the virus and the economic challenges associated with it have continued to impact businesses and workers. As Congress debates a new aid package that is likely to include weekly enhanced unemployment benefits, I thought I would take a look at recent research about whether the additional benefits did more harm than good.

But before I get to the studies, it is important to note that during May, June and July, more than 9.3 million workers returned to a job, despite the availability of generous unemployment benefits. This might suggest that as a disincentive to stay home, enhanced benefits were not excessively discouraging to all workers.

Now on to the studies.

Researchers at Yale University who reviewed scheduling and time clock data for small businesses found “no evidence that more generous benefits disincentivized work either at the onset of the expansion or as firms looked to return to business over time.” A study published by the National Bureau Of Economic Research found no evidence that enhanced benefits drove job losses or slowed rehiring..

And a survey by Franklin Templeton-Gallup, conducted in early August, found most people said extra government relief would not keep them from going back to work.

One reason for these results is that people generally look ahead and intuitively understand the long-term security of returning to work rather than relying on ongoing government benefits. That conclusion appears to be supported by new research from economists at the University of Chicago and New York. Because of the short-term nature of the extra benefits, the possibility of not getting another job offer after refusing one is terrifying. Especially in the midst of a recession. Workers must also worry about the likelihood that lower wages and career setbacks could be permanent. In short, workers tend to choose the stability offered by employment over the short-term benefit of additional income gained from government assistance.

Fewer job applicants may also be the result of a smaller applicant pool. Prior to the pandemic, some businesses were having difficulty filling positions. Because of the tight labor market, many jobs were filled by those moving from one job to another. So, it might be that many of those who were laid-off from their jobs early this year are simply waiting to be recalled rather than switching to a new job.

However, perhaps the biggest reason for the current high unemployment numbers is that for most people collecting unemployment, there aren’t any jobs. About half of the 22 million jobs that were lost at the beginning of the coronavirus outbreak have not yet returned.

Finally, while the $600 supplemental benefits may have created some problems for businesses trying to fill vacancies, it was also responsible for a significant benefit to the economy. According to economists at the JPMorgan Chase Institute and the University of Chicago, jobless workers boosted their spending well above pre-virus levels after they started receiving the enhanced payments, even though everyone else spent far less. The result was that retail spending in June was higher than in February on a seasonally adjusted basis. Americans who kept their jobs benefited from that spending just as much as the unemployed: Without the payments worth about 4% of pre-virus national income each week, consumer retrenchment in one part of the economy would eventually have spread to other sectors as diverse as law, software, and media.

So, while some may debate whether supplemental unemployment benefits disincentive work, many Wall Street analysts and economists emphasize that getting money to consumers will not only keep businesses open and workers employed, but without financial relief, millions of Americans will suffer and the economy might degrade from its current slow rebound in growth to no growth at all.

Brian is the former counsel to the West Virginia House of Delegates Judiciary Committee and counsel to the West Virginia Senate Minority Caucus. He was also general counsel to the West Virginia State Health Officer and Commissioner for the Bureau for Public Health. He has almost two-decades of experience as a strategic advisor and chief legal counsel to both executive and legislative branch public officials.