Is a $300 unemployment boost holding back jobs? Yes and no

Governor Asa Hutchinson said Arkansas would end increased unemployment benefits on June 26th.

Andrew Harrer / Bloomberg via Getty Images

Tensions are mounting over a $ 300 weekly unemployment benefit surcharge.

A weaker-than-expected job report in April sparked outcry in some circles that the payments are fueling a labor shortage. The extra help provides an incentive for laid-off workers to stay at home, critics argue, making it difficult for companies to hire employees.

Others believe factors like childcare and the virus play major roles in hiring difficulties – not the $ 300 payments. It’s likely a short-term slip as well, reflecting the mounting pain in a fast-growing economy, they claim.

But the truth, according to economists, is likely to be somewhere in the middle.

Rapid changes and unique pandemic dynamics make it impossible to pinpoint exactly how far the $ 300 boost could hold job seekers back, they said.

“It’s complicated,” said Diane Swonk, chief economist at Grant Thornton.

“The biggest mistake one can make is trying to assess the current situation through the lens of past recessions or ideologies,” she said. “This time is really different.”

Political fault lines

However, the problem has actually erupted along political fault lines.

Republicans and corporate groups like the Chamber of Commerce tend to scrap the added benefits, and Democrats tend to keep them.

Last week, three Republican-led states (Arkansas, Montana, and South Carolina) announced that they would end the reinforced months of aid ahead of schedule. More are expected to follow.

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The move would end all benefits of the pandemic for self-employed and gig workers, as well as the long-term unemployed, in addition to the $ 300 per week at the end of June. The American bailout plan offered these benefits through Labor Day.

Meanwhile, the U.S. economy created 266,000 jobs in April – less than the 1 million expected.

“The mere acceleration of job creation is making it much more difficult to hire than it has in the recent past,” said Ioana Marinescu, assistant professor of economics at the University of Pennsylvania. “We don’t have adequate acceleration in people looking for work.”

“It’s easy to conclude, ‘Oh, it’s the perks,'” added Marinescu, who studied applications during the pandemic. “They may play a role based on previous evidence, but they may not be the only one.

“It’s a nuanced picture.”

Seen

The controversy is kind of déjà vu from last summer when Republican lawmakers opposed extending a weekly CARES Act addendum of $ 600 that ended in July.

This scholarship replaced 100% of the wages lost for the average worker made redundant. But it paid many people – mostly the low earners – more than their previous paychecks.

Sometime [the $300] will lead to a lack of jobs. But it’s hard to know when that is.

Ioana Marinescu

Assistant Professor of Economics at the University of Pennsylvania

Research shows that the extra $ 600 per week isn’t a huge incentive to get a job. The same may be true of the $ 300 supplement (which replaces an average of 74% of pre-layoff wages) due to hurdles in getting back to work, according to economists.

These include lack of access to childcare, continued online or hybrid personal schooling, and a lack of after-school programs that are vital for low-income parents (mostly mothers), Swonk said.

Vaccines weren’t widely available until recently, either, and workers need two to six weeks for the regime to become fully effective – meaning many won’t be able to return to work safely until June, she added.

Many baby boomers chose to retire (for fear of contagion or otherwise) and it is unclear how many could return after being fully vaccinated, she said.

States also generally require that people actively look for work in order to receive unemployment benefits. States suspended the rule early in the pandemic, but many reintroduced it – meaning beneficiaries will already have to look for work to continue receiving help.

Workers also cannot turn down an appropriate job offer and continue to receive unemployment benefits, except in some Covid-related circumstances, President Joe Biden said in a press conference Monday.

“We’re going to insist that the benefits law be upheld. But we’re not going to turn our backs on our fellow Americans,” he said.

“Massive readjustment”

According to Peter Ganong, assistant professor of public order at the University of Chicago who studied the relationship between unemployment benefits and incapacity for work during the pandemic, more time and labor market data is needed to make an accurate estimate of the $ 300.

“The labor market is currently in a massive adjustment,” said Ganong on Twitter. “Let’s wait for data instead of making guidelines based on anecdotes.”

It is also difficult to make national policy prescriptions for something that differs from region to region.

In Montana, for example, unlike the rest of the US, the job market seems close to pre-Covid status, Ganong said. (Montana is one of the states that are choosing to end access to advanced benefits.)

The $ 300 benefits also help boost the economy, Marinescu said. If taken away at the national level, it can result in lower household spending – potentially reducing the demand for business goods and underselling the need to hire more workers.

“It’s not a black and white picture,” said Marinescu. “Everyone experiences a certain adjustment phase.”

“Sometime, [the $300] will lead to a lack of jobs, “she added. But it’s hard to know when that is.”

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