In a New York Times news item this morning that has since been changed, the reporters state:
Another 3.8 million U.S. workers filed jobless claims last week, despite trillions of dollars in stimulus spending.
Despite? No. I would bet that about half or more of the 3.8 million filed jobless claims because of the “stimulus spending.” Or, more particularly, because of one element of the spending: namely the added $600 per week in unemployment benefits on top of the regular state government unemployment benefits.
I wrote about that at some length here and pointed it out on March 25 when there was a slim chance of overturning this anti-work part of the bill. Those extra benefits last until the end of July.
For that reason alone, I’m confident that the economic recovery won’t begin until August.
READER COMMENTS
Jon Murphy
Apr 30 2020 at 12:41pm
I’m speaking with a relative of mine, they said being laid off has been the best thing for them. They’re earning more now on UI than at any previous point in their life (I suspect this is not true adjusted for inflation, but is definitely true of the past few years).
This individual intends to collect as long as possible.
Larry
Apr 30 2020 at 1:06pm
I have spoken to a number of neighbors that have confirmed your thesis, David. The addition of the $600/week benefit — which dwarfs the offering by Michigan in many cases, especially for lower-paying jobs — tips the balance for entire families of applicants.
Jonathan Seder
Apr 30 2020 at 2:30pm
James Taranto ran a regular feature in his “Best of the Web” blog highlighting “Butterfield Effect” items in the New York Times – stories in which “despite” really means “because of.” “Taranto coined the term after reading Butterfield’s articles discussing the ‘paradox’ of crime rates falling while the prison population grew due to tougher sentencing guidelines.”
b king
Apr 30 2020 at 5:02pm
isn’t there a problem in the theory, however, because of how unemployment claims work? If I quit, I can’t claim unemployment. I need to get fired – so the incentive doesn’t push the *employer* to fire me in any way. It would make sense however, if you are talking about the propensity to go back to work, where the reserve wage is now quite high.
Mark Bahner
Apr 30 2020 at 5:17pm
It seems to me that high unemployment payments would encourage employers to fire people. If the employer knew that the unemployed people would be close to as well off if they were unemployed as when they are employed, I think there would be a fairly strong incentive to lay them off, if the employer was losing money to keep them employed.
It seems to me that incentive would be particularly strong if the employer laid them off during a time they were unlikely to find work elsewhere.
Massimo
May 1 2020 at 8:44pm
It’s easy to get fired if you want. Stop showing up at work. Or act like the Kevin Spacey character in “American beauty”.
Mark Bahner
May 2 2020 at 11:27am
It doesn’t seem to me like a good idea to deliberately get oneself fired via bad behavior when unemployment is high!
But it does make sense to me to go to one’s bosses and say something like:
That would allow the employer, in cases of “close calls”, to think that laying you off would be the proper way to go. That way, you could get laid off with no bad feelings about rehiring you if the business situation changed.
Thomas Hutcheson
Apr 30 2020 at 6:11pm
I do not understand the model in which excessively generous unemployment insurance in a few strata would explain much if any of the increase in unemployment claims.
In any case the writer is indeed off base to think that the amount of fiscal “stimulus” could have a macroeconomic effect unless the Fed buys more assets if some of them are newly issued from the US Treasury than they would otherwise.
David Henderson
May 1 2020 at 8:57am
You wrote:
I thought it was clear but I’ll clarify. Incentives matter. When tens of millions of people who were fired can stay out of work and be paid more than when they worked, a large percentage of them will stay out of work.
Thomas Hutcheson
May 1 2020 at 11:29am
Try again. The claim was that the UI payments caused an increase in unemployment claims which requires getting laid off. I still do not see how the incentive (to do what?) leads to the layoff and new unemployment claim.
And when a worker’s MVP falls below his wage we WANT them to be laid off, right? If knowing that the worker will receive UI makes the employer less reluctant to keep the w<mvp work on the payroll, that seems like a good thing. We don’t want things like the PPP and the airline bailout to create a perverse incentive to pay people more than their MVP, do we?
David Henderson
May 1 2020 at 12:50pm
You said “Try again.”
My answer to you is try reading. I linked to the article in my piece. But here it is again.
Chris
Apr 30 2020 at 7:49pm
You are educated enough to understand that the point of that line is that, despite corporations and businesses receiving significant funding, it does not seem to be enough to prevent mass layoffs. As the unemployment increase is a rather small portion of that full stimulus, it seems to follow that it should not be having as much of an impact as the other spending and if it is, then the business loans are not being used very effectively to combat unemployment. That does make sense since mist businesses will priority paying other loans and keeping assets as employees are relatively easy to replace.
john hare
May 1 2020 at 4:39am
Quality employees are quite difficult to replace. Equipment and real estate are relatively easy. Unless you are strictly referring to the “warm body” types of no particular skill.
Fred_in_PA
May 1 2020 at 9:21pm
YES!!!
There are very few jobs in the U.S. anymore that are just grunt labor.
I used to know (but have now forgotten) the average cost of replacing a worker; But it was some substantial percentage of a year’s wages. If this event is expected to last only a couple of months or so, then keeping people on the payroll is far more economical than losing them and trying to replace later.
I wonder, too, if loyalty isn’t a two-way street. We could hope that if we’re loyal to them now, they’re more likely to be loyal to us later. It would be nice to think that common decency might be reciprocated.
David Henderson
May 1 2020 at 8:59am
You wrote:
I think what you’re missing is the power of “thinking on the margin.” The extra UI benefits are, as you suggest, “only” about 12% of the whole “stimulus” package. But for millions of unemployed workers, those payments plus the state UI payments exceed what they were earning in their previous jobs.
David Seltzer
May 1 2020 at 4:42pm
Henry Hazlitt. Man Vs. The Welfare State. Incentives are well explained.
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