Evidence of the Risks of Elevated Unemployment Insurance Benefits

Erin PartinLast week ’s job market numberswere strong. The unemployment rate fell to 6.0 percent – the lowest since the start of the COVID-19 pandemic – and total nonfarm payroll employment rose by 916,000 in March. But signs already suggest that the employment bounce-back is being restrained from its full potential by Congress’s decision to entrench a $300 weekly unemployment benefit sup plement through September.Combined with state unemployment benefits,around 37 percent of workers can currently make more unemployed than in work. A low-income worker in Massachusetts previously earning $535 per week faced a pre-pandemic replacement rate of unemployment insurance benefits to earnings of 48 percent ($257). Now, the same worker would obtain benefits worth 104 percent of their pre-recession earnings ($557).In New Mexico, someone previously earning $342 per week would see a replacement rate of 141 percent from the expanded benefits ($483). The disincentive to work this creates reduces the labor supply, raising market wages but by squeezing employment levels as fewer workers make themselves available for job opportunities that are economic to offer for businesses.Using evidence from last year when supplementary benefits were a massive $600 per week, many argue there is little to no work disincentive. True, plenty of workers will think longer-term and re-enter the labor market if they think a job now provides more security after the pandemic. But last year conditions were v...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs