Are Unemployment Benefits Making It Harder to Find Workers?
If you’re like me, you’ve probably seen “We’re Hiring” and “Help Wanted” signs all over the place in recent months. In fact, the level of job openings is now nearing pre-pandemic levels. I also know that unemployment, though much lower than its peak during the pandemic, is still higher than it was in 2018 and 2019, and the rate of hiring has dramatically slowed down since the summer and fall of 2020. Why is it that, despite strong job openings and millions more unemployed than before the pandemic, we aren’t seeing more people getting back to work?
We saw similar weak employment recovery following the 2009 financial crisis when endless extensions of unemployment insurance benefits discouraged some from seeking jobs and reduced job creation. Could the forces that created the “Redistribution Recession” last time also be a threat now?
One reason to be extra concerned is that people may be getting more money on unemployment than they would if they were working. The most recent federal relief package, the American Rescue Plan Act, extends unemployment benefits through at least September and maintains the $300 supplement that gets paid out on top of the usual state benefit.
Unemployment benefits are meant to provide temporary assistance for people as they look for jobs. These benefits are not intended to replace work and therefore should not put people in a position of taking a pay cut to get a job. Why would people go back to work if that’s the case? We also need to be mindful of other factors here—disincentivizing work hurts small businesses that are trying to find workers to get back up and running.
Of course, not all unemployment benefit recipients are receiving more than their previous paychecks. Some workers are getting paid too much—disincentivizing them from taking a job—while others are still left to make do with less money than when they had a job. To fix these problems, it may make sense to replace the $300 supplement with unemployment benefits that are more closely tied to previous wages.
The best way to get the economy on track is to help jobless workers avoid financial distress while still ensuring that it is financially advantageous for them to find a new job rather than remain unemployed. Putting money in people’s pockets is a temporary Band-Aid that staves off hardship. But if an unemployment insurance program delays the real cure of getting people back to work, is it really a stimulant for the economy? Or a depressant?