Turns out, if people can make more money by staying home than going to work, that won’t work out great for the economy. Who would have guessed it?
Oh, right, that’s exactly what critics of the $2.2 trillion CARES Act predicted. In particular, we warned that with a whopping additional $600 a week, the coronavirus relief effort’s expansion of unemployment assistance would make benefits higher than wages for many workers. In the short run, lawmakers hoped this would allow more people to stay home to mitigate the spread of the coronavirus. Congress even made it so that essentially anyone could quit his or her job and claim the benefits. But a new report suggests that this is having economic consequences that far outweigh the benefits.
The conservative-leaning Heritage Foundation found that the expansion in unemployment benefits was incentivizing job losses, to the tune of 13.9 million additional unemployment claims that would not have been made without this expansion in place. This means “the additional $600 benefit will increase the number of people who become unemployed and collect unemployment benefits by 90 percent at the peak of the COVID-19 economic slowdown.”
With up to 14 million jobs on the line and as much as $1.5 trillion in lost output, Congress should fix this disastrously flawed provision by capping total unemployment benefits at no more than 100% of workers previous wages. https://t.co/L6AuWvORmh
— Heritage Foundation (@Heritage) May 2, 2020
That benefits are exceeding wages is openly discouraging people from returning to work as some businesses now seek to rehire them. I previously covered the many examples of this phenomenon, which undermines the point of the CARES Act, as it sought to keep workers attached to their employers through this crisis so they could immediately return to work post-coronavirus.
It’s worth noting that this is exactly what Republican Sens. Lindsey Graham, Ben Sasse, and Tim Scott warned would happen during the debate over this bill. And, unsurprisingly, the experts at Heritage now project that this spike in additional unemployment will have disastrous economic results.
“We estimate that the $600 benefit’s effect on unemployment will lead to an additional loss in GDP between $955 billion and $1.49 trillion as additional workers who receive UI benefits also take longer to return to productive work,” the study finds. “Consequently, we estimate that GDP will decline by more than twice as much as it would absent the additional $600 benefit.”
Heritage recommends that lawmakers immediately cap unemployment benefits so they, at the very least, cannot exceed 100% of wages and argues this should have been done all along.
The lush benefits are currently authorized through the end of July. As the Washington Examiner’s editorial board argues, we absolutely should not extend them any further, as Democrats and others in Congress will no doubt be keen to do. One Democratic congressman just introduced a bill to extend the benefits through December! But this is a horrible idea, and it’s hard to imagine how any sort of even partial reopening, as many states are now attempting or soon will attempt, can possibly succeed while these benefits remain on the books.
For the economy to reopen, we’ll have to get big government out of the way. That means eliminating unemployment benefits that are literally paying people more not to work than if they remained with their employers.
