Why the Stimulus Bill As Written Will Keep Unemployment High
It will increase weekly unemployment benefits by $600 and keep the unemployment rate high.
The economic aid package that Senate Democrats are currently negotiating with the White House includes a significant expansion of unemployment benefits for Americans who have lost jobs or been furloughed due to the coronavirus crisis. But it’s not quite what Senate Minority Leader Chuck Schumer has described publicly. Depending on who you are, it might actually be a better deal.
A better deal, that is, for people with unemployment insurance, that is, not for taxpayers. This is from Jordan Weissman, “The New Stimulus Bill Gives Unemployed Workers an Extra $600 per Week. That’s Huge,” Slate, March 24.
Senator Chuck Schumer (D, NY) even called the provision “unemployment insurance on steroids.” Unfortunately, he’s right.
The current draft bill, which was sent to me by a Democratic policy aide, offers jobless Americans a flat weekly payment of $600 on top of the ordinary unemployment benefits they would usually receive, for up to four months. It also extends regular unemployment insurance for an extra 13 weeks and makes more former workers eligible. The spending is federally funded.
So someone who would otherwise get, say, $300 a week for being laid off from a $600 a week job, would now get $900 a week. Think he or she would go back in the next 4 months? Not likely.
If this bill is passed, unemployment will remain high for at least 4 months. It’s one thing to give everyone a check. It’s another to purposely give a huge number of potential workers a super check per week for 4 months.
And the resentment by independent contractors and by other people who quit their jobs (I know of 6 locally, who because of their fear of the coronavirus, quit last week), none of whom will get these benefits, will be intense.
Note: In an earlier version, I made an unfair charge against Binyamin Appelbaum. I apologize. Thanks to commenter Daniel Kuehn below for pointing it out.
Mar 25 2020 at 6:50pm
You’re omitting important context on Appelbaum. He was replying to this statement: “The senators’ fear, the source says, is that some workers would see the enhanced unemployment benefits as an incentive to leave their jobs.”
That is wrong for precisely the reasons Appelbaum says it’s wrong.
I don’t agree with him on everything but I think it’s unfair to call him incredibly ignorant.
Mar 25 2020 at 7:11pm
Thanks, Daniel. Change made. See above.
Mar 25 2020 at 6:55pm
Looks like the extra $600 expires in July for everyone, regardless of when they started claiming it. If so, there should be a measurable effect on unemployment rates at that time.
Mar 25 2020 at 7:42pm
My foreman mentioned today that he knows people that are not looking for work while they wait on The Check.
Mar 26 2020 at 8:09am
The increase in UI is specifically designed to stop people from looking for work when they should be staying home. Keeping unemployment high is sort of the goal. Obviously, this is a pretty blunt instrument, but given the fact that people who can work from home on average are also more highly compensated, the disincentive for “knowledge workers” will not be as high as it will be for restaurant workers and yoga instructors.
Mar 26 2020 at 8:55am
A relevant quote from the linked story, since it may be paywalled.
Mar 26 2020 at 1:53pm
These are clearly “men [and women] of system,” to use Adam Smith’s words. They are confident that 4 months is the right amount of time.
Mar 26 2020 at 2:44pm
In fairness to them, I don’t think they would claim any sort of confidence that 4 months is the right amount of time, but that it is unlikely to be too long. It’s an interesting problem that doesn’t seem to have any kind of modern equivalent. Is it possible to pause the economy for a few months with minimal disruption so that things can quickly get back to where they were?
Like you, I’m skeptical about how much success they will have, the stimulus will inevitably introduce plenty of distortions into the market, and it seems likely will make things worse on a number of fronts. Still, not sure I blame the politicians too much for this one. As Scott mentioned in a post last week, even those that were predisposed too not shutting everything down, were quickly forced to adopt a different position by their citizens. Given that reality, I wonder how much better they could have done?
Mar 27 2020 at 1:48pm
Nobody is confident that this will be over by then, but the republicans don’t want it at all and this was the best the Democrats could get them to agree upon. There was legislation out there from Democrats that did tie funds to the economy, but they’re dead in the water with Republicans because, it takes control from them and could lead to these benefits being extended for a much longer time. As it’s set, the benefits last long enough to be a somewhat secure source of income while giving congress time to assess how the situation progresses and pass additional legislation later. Politics probably also played into the timing, putting congress’s next actions closer to the election.
Apr 12 2020 at 3:12am
You make a really good point. My main concern is that I am an essential, low income medical worker. I am continuing to work and risk my health while people who stay safe at home are making more than I will be capable of in a long time. I see the point, but it still feels like a slap in the face.
Mar 26 2020 at 7:48pm
This is what happens when reforms are postponed to crisis situations. Unemployment insurance that covers a sizable portion of lost wages (and health insurance coverage) should already have been in place and should be contingent on the state of the economy, not the mood of Congress.
Mar 27 2020 at 1:58pm
It’s a slap in the face to those of us who work in healthcare and other jobs that are considered essential and are put at risk for doing our jobs. Let me guess, they’ll also be eligible for Medicaid and food stamps. They should not be eligible for more than what they were EARNING before they lost their jobs.
Mar 29 2020 at 6:48am
Isn’t part of the intent behind this stimulus to keep unemployment high?
Mar 30 2020 at 1:02pm
How about those of us who are working at an essential job for $12. Hours are cut by 1 day per week, still full time. No unemployment. So…..bringing home $300 per week (losing about $400 per month while risking safety) while all of a sudden, surprise, people develop a cough, need to stay home and collect nearly $1000 per month for who knows how long,AND their job is waiting for them when this is all over.
Apr 8 2020 at 11:14am
I am continuing to employ my workers because my business can provide takeout and delivery. I applied for the Payment Protection loan to keep employing my workers. But I have to retain or rehire my same employees. My employees will make more money getting unemployment, so why would they want to keep working??? Restaurants and other small businesses that employ young people and part-time help will not have anyone to work! I am going to close my doors because of this and lay everyone off. I don’t have the heart to make people work for less than what the government is offering! Our country’s unemployment numbers are going to be scary until July! This is madness!
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