coronavirus stimulus

GOP Hopes to Revive Economy by Making Life Harder for Unemployed

Scratch that Mitch. Photo: Al Drago/Bloomberg via Getty Images

America’s official unemployment rate is 13.3 percent (and the actual rate is almost certainly higher). Across the Sun Belt, hasty reopenings have crashed into coronavirus outbreaks and then whiplashed into reverse. Now, the U.S. is setting new records for daily confirmed COVID-19 cases, and cities across the Northeast are preemptively postponing the restoration of economic normality. Anthony Fauci told Congress on Tuesday that absent more robust efforts to contain the virus, new cases could soon top 100,000 per day. Before the recent upsurge in infection, the Congressional Budget Office estimated that it could take ten years or more for U.S. unemployment to return to pre-pandemic levels.

Senate Republicans gazed out on this benighted landscape — examined its shuttered storefronts, overcrowded hospitals, and bustling food banks — and hatched a plan for restoring shared prosperity: Make life harder for the unemployed.

Mitch McConnell’s caucus remains uncertain about exactly what it would like to include in the next coronavirus relief package. But it knows that it doesn’t want that legislation to extend the $600 federal bonus to unemployment insurance benefits that is set to expire at month’s end. As NBC News reports:

“Unemployment is extremely important. And we need to make sure, for those who are not able to recover their jobs, unemployment is adequate,” Senate Majority Leader Mitch McConnell, R-Ky., told reporters. “That is a different issue from whether we ought to pay people a bonus not to go back to work. And so I think that was a mistake.”

“And we’re hearing it all over the country, that it’s made it harder actually to get people back to work,” he added. “But to have the basic protections of unemployment insurance is extremely important and should be continued.”

McConnell didn’t elaborate on what Republicans have in mind.

In interviews by NBC News with nearly a dozen GOP senators on Tuesday, one consistent theme emerged: They are certain they don’t want to extend the $600 per week in emergency jobless compensation because they widely agree that it is motivating people to stay out of work. But they have little clarity on what ought to replace it.

It is true that the CARES Act’s unemployment provisions have left many low-wage workers with higher incomes than they had at their previous jobs. For those of us who believe that most U.S. workers are grossly under-compensated by their employers — and that no one should be coerced into the labor market under threat of hunger or homelessness — this is not a problem. But even if one contends that disciplining the lower orders with the threat of poverty is a prerequisite for economic dynamism in ordinary times (as the typical U.S. politician tacitly does), the GOP’s adamancy on this point is bizarre in the present context.

By now, it should be clear to even the most ideologically blinkered that our economy’s chief ailment is the novel coronavirus (as opposed to the public-health measures aimed at containing it). Even before the recent spike in COVID-19 cases forced Texas and Arizona to reverse course on reopening, consumers began retreating to the safety of their homes. At this point, there is no alternative to freezing large swathes of the service economy —particularly, indoor dining and bars — until the curve of infection is crushed. Under these conditions, it matters little whether enhanced unemployment benefits are discouraging some workers from accepting job offers. No matter their incentives, an enormous number of Americans will remain involuntarily jobless for months to come. And in many sectors, we should want workers to stay at home rather than agree to staff a prematurely reopened business (thereby fueling more outbreaks and prolonged recession). In the present context, trying to restore prosperity by heaping pain on the unemployed is as rational as trying to end a drought by burning a sacrificial child.

Fortunately, it looks like Democrats won’t let enhanced unemployment benefits die without a fight. The House already passed a $3 trillion relief package that extended such benefits into 2021, while providing essential workers with a $13-an-hour bonus (a provision that would ostensibly address the GOP’s professed concern with generous welfare benefits depriving the economy of necessary labor). And on Wednesday, Senators Chuck Schumer and Ron Wyden introduced the American Workforce Rescue Act, which would not only extend the federal unemployment bonus, but would make it a permanent feature of the American social safety net, one that would switch on whenever the U.S. unemployment rate exceeds a certain threshold.

This would turn enhanced unemployment insurance into an “automatic stabilizer” — a policy that helps to stabilize the economy by automatically increasing income support for the vulnerable whenever economic conditions deteriorate. The logic behind automatic stabilizers is simple. Recessions are self-reinforcing: When a drop in consumer demand forces firms to lay off workers, those workers will pare back their spending, further lowering consumer demand, forcing more firms to lay off workers, causing those workers to pare back spending, in a vicious cycle. If the government can intervene in this process early on — by, for example, providing the first round of laid-off workers with giant unemployment benefits — then it can help the economy escape the recessionary cycle quickly, thereby averting the exorbitant material and human costs of a lengthy downturn. But Congress isn’t known for legislative timeliness. Our veto-point laden policy-making process, polarized political parties, and tendency toward divided government all make it very difficult for Congress to inject stimulus into the economy the moment that it’s needed. If lawmakers set enhanced UI to take effect automatically on the basis of objective economic data, however, then Congress only needs to get its act together once to ensure that aid is dispensed promptly in all future recessions.

In a blog post for the progressive think tank Data for Progress, Schumer laid out the details of his proposal:

[O]ur bill would guarantee that after July 31, the federally-funded $600 increase in unemployment compensation will remain in place until a state’s three-month average total unemployment level falls below 11 percent. The extra $600 benefit amount would then begin to gradually phase-out by $100 for each percentage point decrease in the unemployment rate, until it falls below 6 percent.

The bill also extends a number of other expanded unemployment benefits included in the CARES Act, such as Pandemic Unemployment Assistance (PUA) which provides coverage to the self-employed, gig workers, and others who are not eligible for traditional unemployment insurance, through March 27, 2021, regardless of states’ unemployment rates. Afterwards, the enhanced benefits will remain in place until a state’s unemployment rate drops below 5.5 percent to automatically trigger financial relief for however long it is needed.

This would be a valuable addition to America’s threadbare safety net. And it is far superior to the analogous proposal in the House bill, which sets enhanced UI to expire early next year, regardless of how the economy is performing at that time. Which is to say, if House Democrats get their way, a hypothetical President Biden will either have to allow America’s unemployed to get suddenly poorer as soon as he takes office, or beg Mitch McConnell to help him avoid that fate (or, beg Joe Manchin to abolish the filibuster).

That said, there is something slightly odd about the Schumer-Wyden proposal. Traditional stabilizers, like Medicaid and food stamps, automatically increase government spending during recessions because the number of individuals whose financial circumstances qualify them for such relief naturally goes up. An individual low-income American’s entitlement to public-health insurance and nutritional assistance is not contingent on macroeconomic conditions. They are entitled to such help when their personal income falls below a certain threshold, not when their state’s unemployment rate does.

By contrast, under the American Workforce Rescue Act, an involuntarily jobless individual is entitled to drastically higher benefits when the unemployment rate is 10 percent than she is when that rate is 5.9 percent. This makes some sense in macroeconomic terms. But it’s a bit bizarre as a matter of economic justice. Why should the prevalence of unemployment determine how much support any individual unemployed person deserves? America’s most vulnerable workers — often nonwhite, disabled, or formerly incarcerated — are typically the last to find decent jobs during a recovery. Thus, making UI benefits less generous when the unemployment rate dips under 6 percent effectively makes such benefits less generous once the pool of workers eligible for them becomes most disadvantaged.

Tying gig workers’ eligibility for unemployment benefits to the unemployment rate is even stranger. If we think that a 21st-century system of unemployment insurance should cover Uber drivers and freelancers, then that principle would presumably hold irrespective of how the economy is performing.

But I suppose there’s no sense in letting the philosophically coherent be the enemy of the good; at least, not when the good has such formidable enemies already.

Republican opposition to extending the $600 federal UI bonus is entrenched and deeply rooted in ideological conviction. Few things offend the GOP’s moral sensibilities as much as workers gaining leverage over employers, and being able to turn down a job offer without losing income gives the unemployed considerable leverage. But, as recent polling from Data for Progress demonstrates, Schumer and Wyden’s concept boasts strong public support:

Graphic: Data for Progress
Graphic: Data for Progress

And extending enhanced UI is in the GOP’s own electoral best interests. In May, the CARES Act enabled personal income in the U.S. to rise even as the economy shed millions of jobs. And according to the CBO, extending unemployment benefits would significantly increase the GDP growth over the second half of this year.

So there’s reason to think that this is a fight Democrats can win. And given that Joe Biden stands to benefit electorally if no legislative compromise is reached — and the entire UI expansion blinks out of existence come August — Schumer & Co. have every reason to drive a hard bargain.

GOP Hopes to Revive Economy by Making Unemployed Poorer