Should we cut back the federally enhanced unemployment benefits?

Yesterday, when Ed discussed the prospects for another round of pandemic stimulus aid from Congress, he looked at the unlikely possibility of another round of federally enhanced unemployment benefits. The Senate is obviously looking at the current mixture of good and bad news that we’re seeing this month while considering the question. On the one hand, many states are allowing businesses to slowly open back up and recall at least some of their workers. Also, new unemployment claims are still racking up, but the rate is slowing significantly.

But at the same time, many nonessential businesses remain closed and even the ones that are reopening are largely doing so at reduced capacity, so they probably can’t bring back all of their workers… at least not yet. So it sounds like Mitch McConnell and the GOP majority are looking at ways to reduce the “perverse incentives” that Ed was talking about while not leaving too many people up the creek without a paddle. (Associated Press)

After the Senate decided to take a “pause” on new pandemic proposals, senators faced mounting pressure to act before leaving town for a weeklong Memorial Day break. Republicans are staking out plans to phase out coronavirus-related unemployment benefits to encourage Americans to go back to work.. The Senate also began efforts to fast-track an extension of a popular small business lending program.

“Republicans and the White House are reaching consensus on the need for redesigning the unemployment benefits so they are not a barrier to getting people back to work,” Rep. Kevin Brady of Texas, the top Republican on the House Ways and Means Committee, told reporters on a conference call. President Donald Trump and Senate Majority Leader Mitch McConnell huddled at the White House to discuss the issues.

The first thing to address are the aforementioned perverse incentives. The most glaring examples of this are the people whose jobs are once again available, but they’re making more money from federally enhanced employment benefits than their jobs paid so they’re staying home for the time being.

If your job disappears because the government shut down your employer’s business and there are no other comparable jobs available because nearly everyone else is shut down, you are effectively unable to work. This should obviously qualify you for unemployment benefits if you’ve been paying into the system. But if your job is once again ready for you to return and you make the choice not to, you have shifted yourself from the category of being unable to work to a classification of being unwilling to work. And in that scenario, public sympathy for your situation largely evaporates.

But just as rushing into huge new aid programs was bound to produce problems, rushing out too quickly and without proper preparations will take us down a rocky path as well. As Ed noted, the unemployment situation is slowly improving but it’s still pretty bad. With that in mind, the Senate should probably be considering a modified program that incentivizes the largest number of people returning to work as can safely do so while still maintaining some level of support for those who honestly lost their jobs due to government decisions and have no option to return yet.

Yes, this makes it more complicated, but it should still be doable. Step one should obviously be to put limits on the federal enhancements to unemployment benefits. (Which should have been done in the original package, but Democrats blocked the effort.) The total payments should never exceed the employee’s former pay. In fact, the total should be somewhat less, perhaps maxing out at 90% of their pay rate. Plenty of companies who are managing to do business are asking their employees to take pay cuts currently. This is a period of crisis and everyone is having to make sacrifices.

Each person applying for these benefits should be able to show that they did in fact lose their job because of the pandemic and that the employer is not currently hiring for their position. The states should be able to verify this easily enough as part of the application process. Any states unwilling to participate could be dropped out of the federal benefits enhancement program. (And their elected officials would find themselves facing an angry mob if they failed to comply.)

Just taking those two steps would likely produce a number of desirable effects. The total amount of additional debt being run up in Washington would be reduced. Employers would be more likely to get their former, experienced employees back on the job more reliably. And as more people return to work, consumer confidence and demand would start returning to previous levels.

Of course, there will be political hurdles to overcome. Too many of our liberal elected officials don’t really see high unemployment as that much of a problem. The more people you have who depend on the government for their continued survival, the more they will be willing to accept expansions of government power over their lives. And, of course, Democrats will quickly begin screaming about “heartless Republicans” the moment anyone mentions trimming the unemployment benefits by a single penny. But if Mitch McConnell and the rest of his colleagues communicate the reasons for these decisions clearly and avoid falling into any of Nancy Pelosi’s media traps, we could still get this done in an intelligent fashion.