May 10, 2021
The Republicans’ complaint of the day is that the $300 weekly supplements to unemployment insurance benefits, which were included in President Biden’s recovery package, are keeping people from working. The argument is that because many workers in low-paying jobs can get more money from not working than they get on their job, they are choosing not to work.
This is actually an issue that several economists explored, and they found little evidence for this sort of disincentive effect last summer, when the supplement was $600 a week. But before turning to these studies, it’s worth making a couple of points about the nature of unemployment insurance benefits.
First, only workers who lose their jobs can get benefits. Workers are not eligible if they quit their jobs because they don’t like the work or don’t like their boss. To be eligible they have to be laid off, and it has to be for economic reasons. If a worker is fired for cause, say for stealing from the workplace or harassing another employee, they are not eligible for benefits.
The other point is that workers receiving benefits have to be actively looking for work. If they turn down a job comparable to the one they lost, they lose their benefits. One feature that has been extraordinary in this recession is that a very large share of the unemployed report being on temporary layoffs. This means that they expect their employer to call them back to their job. In April, this share was 21.3 percent of the unemployed, but it had been as high as 77.9 percent last April at the peak of the shutdowns. (The share is typically less than 10 percent.) The reason this matters is that if an employer calls a worker back to work, they lose their benefits if they do not go back.
Now, we know these provisions of the program are not perfectly enforced. But the point is that anyone who is making the calculation to not return to work because they can get so much money by staying on unemployment insurance is violating the rules of the program. It is also worth noting that the supplemental benefits end in the first week of September, so this cannot be a long-term plan for them. Even if the benefits might look good relative to working today, that may not be the case a few weeks down the road as we get closer to the expiration point for the supplements.
Fortunately, we do not have to just speculate on how workers behave; we have actual data. Three separate studies examined the impact of the original supplements in the CARES Act passed at the start of April 2020. These supplements were $600 a week, twice the size of the current supplements. All three found that the $600 supplements had little impact on the employment levels during the period in which they were in effect. For example, a study by several economists at the University of Chicago and J.P. Morgan Chase found that employment was 0.2 to 0.4 percentage points lower as a result of the supplements. It is reasonable to assume that the effect of supplements that are half as large would be considerably smaller.
In short, it is not plausible that the generosity of unemployment insurance benefits are a major factor affecting employers’ ability to find workers. While there are some people who are undoubtedly opting to take advantage of the benefits rather than work, based on the evidence from these studies, this number is fairly small.
If the same share of population were working today as before the pandemic, another 8.3 million people would have jobs. The reason the vast majority of these people don’t have jobs today is because the jobs are not there, not because they are happily getting unemployment benefits.