The $2 trillion coronavirus rescue package hit a minor snag on Wednesday afternoon when four Republican senators gave a press conference objecting to its unemployment insurance provisions, noting that in some cases the $600-per-week enhancement to unemployment benefits in the package would mean workers who become unemployed could collect benefits that exceed the wages they used to earn. Senators Lindsay Graham, Ben Sasse, Rick Scott, and Tim Scott are concerned that such a high level of benefits would encourage people to stay out of work and collect benefits instead.
Of course, the point of this rescue package is to address a situation where people are being put out of work for good reason. We want many people to stay home instead of working, and so if these benefits help them do that, that’s a feature rather than a bug. But the senators pointed to a few scenarios where discouraging work could lead problematic consequences, even in this extremely unusual environment.
They are worried that employers who would otherwise keep employees on the payroll during a shutdown will instead take advantage of these enhanced benefits and lay workers off, letting the government handle their payroll bill. They are concerned that workers in industries where we want to maintain or increase the workforce during the crisis — such as health care — might be inclined to become unemployed and claim benefits, and that could lead to a shortage of workers with critical skills. And they are concerned that as the crisis abates, people won’t go back to work quickly enough because they can continue to collect generous benefits by staying unemployed.
These objections don’t make a lot of sense to me. I’ll take the last one first: These enhanced benefits are temporary; they run only until the end of the year, and any given worker can only claim them for four months. We will continue to have virus-mitigation measures that create mass unemployment for a significant period, and even after those measures can be relaxed through much of the country, it will take some time for employers to re-ingest all the previously laid-off workers. In fact, it’s likely that the shutdowns will persist long enough that the enhanced benefits will need to be extended. If we’re in a situation by July where all the shutdowns are over and employers are eagerly hiring and our biggest concern is too many people don’t want to go back to work, I will be overjoyed and very surprised.
As for shortages of workers by sector, it’s important to remember these are unemployment benefits, and you generally have to have been laid off to claim them. If you are a hospital technician who would like to collect an unemployment check instead of working, you’ll have to try to talk your employer into laying you off, which seems unlikely at a time when your employer needs all hands on deck. There may be exceptions to the rule that you need to be laid off: As Brandon Arnold of the conservative National Taxpayers’ Union notes, citing draft bill text, the package may allow certain workers to claim unemployment benefits if the coronavirus crisis forces them to stop going to work, even if they haven’t been laid off. But trying to take advantage of that would be a risky proposition for a worker, who would have to quit and then hope to qualify for benefits under that provision, without knowing in advance how it would be applied. And the enhanced benefits, again, would last for only four months — who wants to quit a job now to maybe collect a few months of benefits and then hope to get rehired during a possible economic depression? I’m not saying these benefits could not theoretically be gamed by anyone, but an advantage of a temporary program is that by the time the participants have learned how to game the system, the system is gone.
Employers who are concerned about losing needed workers also have an option available to retain them: They can raise pay. I realize this prescription makes more sense in some industries than others. In necessity-focused parts of the retail sector, sales are up and so employers are in a good position to hand out raises as they try to retain and even hire staff. Walmart and Amazon have already raised pay during the crisis. If good unemployment benefits put even more upward pressure on grocery workers’ wages at a time when they face unusual health risk from going to work, that seems fine to me. Some other sectors, like health care, may be less able to retain workers by raising pay, because their revenues are pressured at the same time that staffing demands are increasing. (Hospitals are canceling lucrative elective surgeries at the same time they are slammed with COVID-19 patients.) But these big financial pressures on the health-care system are why the rescue package also contains a lot of funding for hospitals. And again, because the enhanced unemployment benefits are very temporary, quite possibly more temporary than unemployment itself, I am skeptical that the promise of such benefits is likely to induce many workers to quit their jobs, especially skilled workers.
The senators’ first concern — that owners of idled businesses are likely to lean on the enhanced benefits to shift payroll costs onto the federal government — is the only one that I think likely to be borne out frequently. But I don’t see it as a problem. Other countries, like the United Kingdom and Denmark, are explicitly enacting this as public policy, having the government pay private payrolls. They’re doing so because in many cases, the counterfactual isn’t the business owner paying workers out of his or her own pocket; it’s the business owner laying off workers anyway and those workers subsisting on benefits that replace a much lower percentage of their income. Most businesses, especially small ones, are not capitalized to keep paying their employees for weeks on end without actually doing business. The point of this rescue package is to rescue those businesses and their employees from the costs of an involuntary shutdown; if firms lay their employees off, let them collect enhanced benefits, and then rehire them when they reopen their doors, the rescue package will be working like it is supposed to.
Finally, I would note that the senators’ proposed fix to this bill does not address the objections they lay out. They are concerned that these benefits will cause some workers to prefer not working over working, and they want to fix that by ensuring nobody can earn an unemployment benefit that exceeds what he or she made by working. How would that limit abolish the purported incentive problem? I would think you could find some workers who would gladly take 90 percent of their current pay if it meant not having to work. There’s nothing magic about the 100 percent line.
Work incentives are just such an odd place to focus one’s attention right now. Currently, we need less work in America. It’s a very odd situation that calls for an odd set of policies. We don’t need to worry too much about what these policies would do in a normal economy, because they won’t be in effect when the economy is normal again. The senators’ remarks on Wednesday made it seem like they could not grasp the temporary nature of this situation or the policies in the rescue package.
“If we do something now that says the new baseline American assumption is … we want people to get more money to not work than to work, the American people don’t want that to happen,” said Senator Sasse. Okay. Fine. We all agree this temporary program is not a new baseline — it’s temporary, and unemployment benefits will revert to being less generous when this crisis is over. So what were the objections again?