Incentives: Should next COVID-19 bonus go to those who *return* to work?

Perhaps this should best be understood in terms of a vicious cycle of government interference in markets. When Congress first grappled with the nightmare economics of forcing a shutdown in commerce, arguably necessary for the COVID-19 pandemic, they passed the CARES Act in an attempt to rescue businesses from obliteration and workers from poverty. The package contained – among lots of other helicopter-money programs — an enhanced unemployment benefit that paid an extra $600 a week, through the end of July.

As Senate Republicans warned at the time, that bonus created an incentive to remain unemployed. If people made more on unemployment than their regular job paid, they’d remain unemployed until those benefits ran out. Congress passed the bill anyway, only to discover that businesses that wanted to remain open couldn’t keep their employees from leaving. That complicated the Paycheck Protection Program’s ability to rescue small businesses, since the forgiveness was dependent on maintaining payroll.

Rather than fix this by removing the perverse incentive Congress created, however, Congress and the White House are mulling a new idea. Why not just add another perverse incentive to undo the first?

Congress and the White House are debating a “return-to-work bonus” this summer, aimed at the more than 40 million workers who have lost jobs and filed for unemployment during the deadly pandemic, as a new incentive for those who go back to work.

President Trump likes the idea, according to a senior administration official, but talks remain fluid about how big the bonus should be and how long it should last, according to eight lawmakers and staffers familiar with the discussions. Directly giving workers a government bonus for several weeks would be largely unprecedented in the United States, although it has been done in other countries.

Sen. Rob Portman (R-Ohio) has proposed that the federal government give people who stop collecting unemployment and go back to work $450 a week for several weeks. Others, including White House officials and Rep. Kevin Brady (R-Tex.), have discussed allowing workers to get up to $1,200 if they find a job, according to three people familiar with White House discussions and who spoke on the condition of anonymity to discuss internal deliberations.

What would be the perverse incentive in this case? For one thing, the Washington Post points out, it might push people back to work while carrying the COVID-19 virus. That’s not a problem that relates specifically to the bonus, of course, but the bonus could amplify the issue — a bit, anyway. More likely, however, the bonus will get paid to those who would have come back to work anyway.

If the idea is to undo the original perverse incentive, why not just … y’know … undo the original perverse incentive? As with most government programs, once an entitlement gets launched, it becomes politically difficult to end. To prove that case, today’s WaPo/ABC poll shows that 58% of respondents want the unemployment bonus program in the CARES Act extended:

The aid package in late March provided an extra $600 per week to people who lost their jobs during the outbreak, a grant that is scheduled to expire at the end of July. House Democrats passed a bill continuing the extra payments through early 2021, but Trump and key Republicans have opposed this, saying the extension could discourage people from returning to work.

The Post-ABC poll finds that 58 percent of Americans overall support extending the extra $600 in weekly unemployment benefits beyond July, while 35 percent say they should end in July as scheduled. But partisans are deeply split, with nearly 6 in 10 Republicans saying extra unemployment benefits should end in July, while nearly 6 in 10 independents and over three-quarters of Democrats say they should be extended.

Rather than fight over this counterproductive incentive and risk angering voters, Congress will instead spend even more money to create a competing incentive. They will literally fight their own program with another program, and taxpayers will fund both sides of the fight. Why? Elected officials respond to incentives too, and right now, they have no incentives to spend money wisely. Capitol Hill has become Helicopter Cash Inc, and both parties now see the solution for every problem is to throw money at it — even when throwing money at people created the problem in the first place.

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