Coronavirus

Don't Expand Coronavirus Unemployment Insurance

The negative impact of the program is well documented.

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Earlier this year, the U.S. government passed the largest piece of stimulus legislation in our nation's history. The Coronavirus Aid, Relief, and Economic Security Act included a very generous expansion of unemployment insurance benefits. The idea was to help people to keep paying their bills during the forced COVID-19 shutdowns. These benefits are expiring, and Congress is now fighting over whether to extend them as they are or to modify them.

The proper approach is to phase these benefits out as quickly as possible.

It is typical that during nationwide economic downturns the federal government provides supplemental funding to boost the unemployment insurance, or UI, provided by the states. But this time around, the expansion was unusually massive. For those eligible for UI, the legislation provided a $600 weekly bonus on top of the unemployment benefits provided by the states. But the bill also expanded eligibility to millions who would not have qualified otherwise, such as many workers who remain employed part time and hourly workers. That means that the Uber driver who lost most of his income during the lockdown and the wife of a banker offering a few hours of private yoga lessons a week are now receiving the state benefits plus the bonus.

Expanding the benefits made sense at the beginning of the crisis. You don't want workers out looking for a job in the middle of a pandemic because they can't feed their family or pay their rent. This was especially important because state and local governments forced hundreds of thousands of businesses to shut down, forcing them to let go of their workers.

What made little sense was the scale of the expansion. One study found that two-thirds of the recipients made more money from unemployment than from working, so much so that disposable income increased by 5.4 percent between February and May.

While it's tempting to cheer the ability of UI to alleviate the pain of the recession, it's not all good news. UI puts money in people's pockets, but the negative impact of the program is well documented. Many studies find that UI benefits create an incentive for workers to delay looking for jobs until the expiration of the benefit. This finding was confirmed by many other studies, including one by economist Alan Krueger, who, in 2008, noted, "Job search increases sharply in the weeks prior to benefit exhaustion." The more generous the benefit the bigger the effects.

In addition, during normal times, UI struggles with a large amount of improper claims—according to some estimates, by nearly 11 percent of its payments. Under the coronavirus relief bill expansion, the unusually large number of cases that will have to be processed by unemployment offices makes it quite unrealistic to expect that dubious claims will be more thoroughly filtered out. In other words, expect a lot of fraud and abuse.

With a July 31 expiration date on the UI bonus and eligibility expansions, House Democrats want them renewed and extended until March 2021. Senate Republicans are offering a $200 weekly bonus for a few months. But the economic reality dictates that the expansion needs to be put on a glide path to zero as soon as possible. To be sure, losing the bonus means a reduction of disposable income for some workers. That's a design flaw of the expansion by those who thought it was a good idea to pay people more when they don't work than when they do work. As such, it shouldn't be used as an argument against returning to a better-designed expansion. Besides, some of the loss can be minimized by going back to work.

What's more, even if one supports expanding UI during rough times, we must remember that whether the money is borrowed or taxed, this redistribution of income comes out of the real economy at the expense of other investments that are likely more valuable. This important reality looms especially large as the economy reopens, and businesses have a long road ahead just to survive.

The difficulties for oversight paired with the generosity of the benefits will continue to reduce both employment and economic output if legislators fail to reform the program. Now is not the time to add more bad policies to the damage already done by COVID-19.

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  2. Nothing on “phasing out” federal give-a-ways to corporations, schools, state and local governments, not to mention think tanks and other non-profits?

    1. Why can’t an article be focused on a single subject? And how many subjects would she have to cover at once before you’d be satisfied?

      1. The “single subject” would be the CARES act which fired up the money printer for all these things.

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    1. Yes, but have you taken a CCW class?

    2. “She is a senior research fellow at the Mercatus Center at George Mason University” hey I can think of one useless job we could do away with and NO ONE would notice! Academic piece of shit, she lives in the real world alright!

    1. Veronique expresses no beef with the money printing, just that the wrong people are getting some small crumb of it.

  4. De Rugy has been an inspiration and a wise giver of truth to me for years at reason but this is the first time I’m left scratching my head. I do not think she’s offering evidence for her position

    The expansion has made a difference in Louisiana. Nothing has changed essentially since the start of the shutdown
    “ You don’t want workers out looking for a job in the middle of a pandemic because they can’t feed their family or pay their rent. This was especially important because state and local governments forced hundreds of thousands of businesses to shut down, forcing them to let go of their workers.”

    What has changed now? It may be easy to discount louisiana as a statistical aberration but you’re not accounting for what the essentially coastal, destination tourism areas of the county are, beyond bars and restaurants: drivers of industries of food, beverage, linen services, janitorial, event planning, I could go on…but it even effects churches and venues catering to multi $10,000’s weddings. This times however many *thousands* of small communities literally exist on this kind of event- and vacation-oriented oxygen.

    For the first time I’ve read an article where De Rugy is tone deaf and seems to be phoning it in. I’m disappointed.

    1. They expect you to work at Walmart or the gas station for 10 bucks an hour. Those jobs are always open because they suck so fucking bad.

      1. Those jobs don’t suck that much if you’re competent and have a decently healthy lifestyle. I’ve worked at a big box store before. Like most jobs if you show up on time and do what you’re told management will treat you okay and you’ll get regular (small) raises. The hardest part of those jobs is dealing with customers, especially if you’re at a register. But patience will help you manage all but the worst people, and if patience doesn’t work, that’s where your manager comes in.

      2. EVERYTHING IS SO TERRIBLE AND UNFAIR!!!!!!

      3. 1/2+ of the small businesses in America went tits up (thanks states and federal public health authorities. There aren’t enough, gas station, grocery store and Walmart jobs to go around.

    2. So we need to keep every worker in the country flush with benefits in order to prop up regional tourism industries? Why not pass a more targeted bailout?

      Also, how long should we expect to keep the industry on life support? What if tourism never recovers? Should we just keep paying them $600 for nothing for the rest of their lives?

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  6. No chance of happening. Zero.

  7. The Koch / Reason economic plan for the TrumpVirus era is precisely the same plan we advocated before the TrumpVirus — allow unlimited, unrestricted immigration and abolish the minimum wage.

    #OpenBordersWillFixEverything

    1. With the schools choosing to remain closed we should go full libertarian and re-legalize child labor.

  8. You may know a lot about economics but you apparently don’t know shit about politics.

  9. Again I thinks the author attempts to portray the unemployed as lazy and not wanting to work. With the coronavirus on the rise in many states we are likely to see unemployment remain high, suggesting we are not yet at the point of rolling back UI benefits. Where I will give the author credit is point out that UI may be outdated for the challenges it faces. I see UI as developed to assist people over shorter periods. Examples are a factory closing and workers out till a new company takes over the factory. Another is plant retooling or seasonal work. What we face now is the possibility of a future with long term unemployment. I like to see looking at a complete transition from UI to a guaranteed income.

    1. Have you bothered to do the math?

      the author attempts to portray the unemployed as lazy and not wanting to work

      The $600/week benefit works out to $31200 per year, per person, on top of existing unemployment benefits. So, if a family of two could make $62K a year, not working, why in the hell would you ever want to work? Why would you want to get a job? Forget lazy, set the incentives up right, and no one will be dumb enough to work, unless you are one of the few people making >$100K or more per year. And it still won’t be worth the time you lost, unless you’d rather be at work than at home.

      1. Where is this supply of jobs people are choosing not to take when they were put out because of mass layoffs in the first place?

    2. Not at all. The author portrays the unemployed as rational and able to do basic math. If UI benefits > wages, why go back to work? Yet in aggregate, UI benefits are paid for by debt which means they will come from future wages which means that high benefits or long-term benefits are obviously unsustainable.

      “Guaranteed basic income” is a social model that has been tried several times around the world and succeeded precisely nowhere. There are too many political incentives for abuse. What makes you think it would be any less bad here?

      1. GBI may or may not be the best way to go, I do however think that the current UI model is itself not really workable. Ms. De Rugy pointed out examples of people who should not get the benefits and I agree with these examples. What I see is a need for a more flexible model that can adjust to the situation. Current situation is broad spread unemployment that can be expect to be short in duration (1 to 2 years). Other situation are a community that loses a long term employer (plant closing) where many of the unemployed will never be fulling reemployed. I would also like to see unemployment addressed and address based on the individual. That is your under employed because you make enough to get by and that works for you versus you like more and are involuntarily underemployed.

  10. Yep. A UBI, or GMI, or whatever one wants to call it, should be set somewhere just below the minimum wage. At least that is how Milton Friedman envisioned it, through a negative income tax. And it would replace ALL existing federal so-called anti-poverty programs.

    1. Admittedly, it sounds pretty fair and reasonable, especially the way Friedman laid it out.

      But we all known damn well this is not at all how it will actually play out in the real world. It will end up being ABOVE the minimum wage, and it won’t “replace” shit; it will just be another addition to the existing welfare panoply.

      The left gets bolder and bolder all the time about plainly enunciating their agenda to “fundamentally transform” America from a predominantly work based society to a predominantly welfare based society. Andrew Yang (who I call the Human Fortune Cookie” is quite blatant about it; his Twitter feed is basically an endless series of calls to give more free shit to everyone.

      1. “…we all known damn well this is not at all how it will actually play out in the real world…”

        Unfortunately, I cannot disagree with this. But it might be politically possible to incorporate some pieces of it. The EIC is one example, albeit a poor one. One might, however, be able to replace government housing programs with direct vouchers. But yeah, if there is no advantage for the politicians, it’s a hard row to hoe.

  11. What’s that? Spend more money? You got it chief!

    BRRRRRRRRTTTTT

  12. Senate Republicans aren’t going to do anything that doesn’t benefit Senate Republicans.

    1. And neither are Senate Democrats or House Democrats. So what’s your point?

      1. One of them can benefit themselves while not sacrificing all of their principles?

        1. That’s a side effect of one side not having any principles to sacrifice

          1. I should have said without sacrificing what normal people would call the most rudimentary of ethics. “Don’t kill people with stupidity.”

            The sick game theory of it all is that Republicans have figured out that having no concern whatsoever for the well-being of the human race gives them a marked advantage in negotiations.

      2. author is hopeful for Team McConnell to do whatever right thing would be the right thing for people Team McConnell doesn’t care about

  13. i have no love for Trump, but all the talking heads complaining about this make me sick. Literally any concern they have you can rebut with “So let Germany/Europe handle it”

    1. obviously this is on the wrong article. my bad for not navigating my own browser tabs correctly

  14. So they want people to work during an uptick in positive cases of the covid19 virus. People are not working because many employers are still closed. People value thier and their families health. Furthermore, UC has always paid more if not the same amount as when you were working. Years ago when I went on UC i was actually recieving more than when I was working and chose to exchaust my benefits and actually saved money because I didn’t have the expenses associated with going to work. Meanwhile the politicans playing with people’s lives and health are still collecting their 100k and more salaries. YEP THE LITTLE PEOPLE DESERVE NOTHING YET THEY WANT TO NICKLE AND DIME US WITH INCREASED TAXES. How about passing a law ensuring people are able to recieve a sustanable salary from emplyment instaed of living paycheck to paycheck?

  15. I’m happy with whatever they give us

    1. Government shouldn’t be “giving us” anything. What they’re doing is just printing money out of thin air and handing it out. All I’ll do is use it to pay down whatever debt I have, not go out and buy more stuff.

  16. If it made sense to keep people from going out looking for work in a pandemic it still makes sense. The pandemic is far from over people. Yes lower benefits to $200 a week, but keep them going until there is a light at the end of the tunnel.

  17. Just a mind bogglingly stupid and dishonest article. First: the reason the additional income was provided is that UI doesn’t cover your full wages typically a max of 70% or less. So the additional money is to help our people who were not going to be able to make rent because their wages were 70% or less of what they were. Second: what jobs are these people going to return to? Half the country is still closed down, the other half may be doing so soon. On fraud and abuse: anyone that thinks that it’s easy to get these has never filed. It’s a MASSIVE pain. It’s definitely easier to sell drugs. And if a few people get money that they should have so what? Consider how much waste and fraud is inherent in every business tax credit. Hint: it dwarfs that in the UI system.

    1. Um, yeah right. I own a business and everyone who actually shows up to the interview demands $1200+ a week AFTER taxes, because they’re already getting $960.00 without working. A $400.00 pay cut might be a good incentive. I got called back by 3 people, changing their demands to merely $10 more/hr than I train rookies (at a cost of $4k to me by the time they can produce). What this weak, entitled country really needs is a great big bilboard that says FRESH OUT OF SOMETHING FOR NOTHING. That goes for the Fed bank system, their crony polititions and all their crony businesses as well.

  18. The reason the additional income was provided is that UI doesn’t cover your full wages typically a max of 70% or less. So the additional money is to help our people who were not going to be able to make rent because their wages were 70% or less of what they were. Second: what jobs are these people going to return to? Half the country is still closed down, the other half may be doing so soon. On fraud and abuse: anyone that thinks that it’s easy to get these has never filed. It’s a MASSIVE pain. It’s definitely easier to sell drugs. And if a few people get money that they should have so what? Consider how much waste and fraud is inherent in every business tax credit. Hint: it dwarfs that in the UI system.

  19. Why are those who were laid off in March or later deserving of $35,000 more per year than the poor guy laid off in April? It’s one more example of the great generosity by politicians (of other’s money) for the unfortunate “little guy”, but only those “little guys” who might exist in large numbers. Individuals who have bad fortune befall them are on their own, or at least must manage on what is available at all times.
    People lose their jobs in both recessions and economic boom times. National concerns for them are typically limited to recessions. Maybe its a belief that anyone who loses their job in boom times must really suck and sort of deserve it. But I’ve found that only to be possibly true in active employment sectors, the same ones where the UP rate are relevant. But many, if not most, of those laid off in boom times are those who’s jobs are truly gone (not so much that their job still exists, its just that someone else is doing it), lost to obsolescence or contraction of that particular job.
    Regarding the present situation, the Republican’s plan seems at least reasonable for some time; but the federal additional contribution should have been based on a percentage from the beginning. As overgenerous as the $35,000 payment may have been in most regions, it would be unfair to cut it immediately and would have a bad economic ripple effect in some places.

  20. And no more of these “stimulus funds”, basically borrowed money just added to the massive pile that is the National Debt. We can’t pay it back and we’re burying ourselves in debt. At some point, this monstrous chicken is going to come home to roost and we’ll see the mother of all financial crashes which will impact the entire world.

  21. Where do they find these writers? The alt-universe ones seem to crawl out from under their rocks whenever there’s an economic crisis. This statement is especially egregious: “this redistribution of income comes out of the real economy at the expense of other investments that are likely more valuable”.

    First, it’s not up to the author to decide which investments are more valuable. That’s the function of the economy. Second, money paid out in UI doesn’t evaporate. It flows from recipients to landlords and mortgage companies, and to retailers and service providers, who then spend it on or invest it in those “more valuable” investments.

    I guess modern doctoral programs no longer require Econ 101.

    1. Nah, modern econ 101 is a mix of Keynesian and intersectional politics-sjw-entilement from opression bs. They’d need a safe space and some Xanax if you taught them 15 minutes of Friedman or Sowell.

      1. In normal academic disciplines, failed fringe thinkers are marginalized and forgotten. Only Econ has billionaires propping up its charlatans with cash. It’s a real thing.

  22. The middle of a pandemic and economic catastrophe is the worst time to fuss over whose income passes some work ethic test. Just put that busybody crap away for a while until we get back to normal. The economy is off a cliff because people can’t and shouldn’t go to work. The problem of disincentivizing a few jobs is beside the point. If giving Eric Trump a trillion dollars could solve the pandemic, I say give it to him and let historians debate the morality. Or chase him down with dogs until he gives it back. Who gives a fuck?

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  24. It is typical that during nationwide economic downturns the federal government provides supplemental funding to boost the unemployment insurance, or UI, provided by the states. But this time around, the expansion was unusually massive.

    But this time around the unemployment is unusually massive and astoundingly sudden.

    I’ll listen to Ms. De Rugy’s opinions after she’s been unemployed for six months or so. She needs that experience to get a fully rounded understanding of real world economics.

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