With the economy cratering in late March, Congress swiftly and unanimously passed a $2.2 trillion bill to cushion the blow to businesses and individuals ravaged by the coronavirus and resulting lockdowns.
Some politicians, notably Sens. Ben Sasse of Nebraska and Marco Rubio of Florida, warned of the danger in paying laid-off workers $600 a week on top of regular unemployment benefits. “It appears that when you look at the interaction of different programs in this bill, there are multiple cases where folks would get more money, and in some cases significantly more money, by being unemployed than if the employer-employee relationship were maintained,” Sasse warned.
Under another provision, small businesses qualify for loans that they would not have to repay if they maintain payrolls and rehire laid-off workers, even if those workers, nevertheless, continued to stay home. But big benefits are an incentive for those workers to reject offers to return to their jobs.
Warnings about perverse incentives went unheeded. Many lawmakers didn’t want to slow the process of providing financial help with more complicated ways of distributing the money. Many Republicans wanted to work within the existing system to avoid creating a new entitlement, such as universal basic income. We argued that enhanced benefits for a short time was better than extending existing unemployment for years, as happened during the Great Recession.
Perverse incentives are now proving damaging. Business owners can’t rehire workers who are now better off on the dole. This also means businesses could fail to qualify for loan forgiveness. States that want to reopen their economies are finding that workers don’t want to give up their bloated benefits. Thus, government benefits are now competing against and overmatching productive businesses.
The current payouts don’t expire until the end of July, and House Speaker Nancy Pelosi is pushing to extend them through September. Anyone might think she’d like to see high unemployment in the run-up to the presidential election in November! If the bigger benefits are renewed, they’re unlikely to be allowed to expire just before the election. Yet, with double-digit unemployment inevitable in the coming months, Republicans will find it difficult to resist demands for continued federal assistance. But resist they must if there is to be any hope of returning the economy to a semblance of normalcy, and of preventing a short-term emergency measure becoming a long-term expectation.
If Republicans cannot find the political will to end enhanced payments, they must change the way they are paid, so as to encourage workers to stay in their jobs whether or not they can report to work. One suggestion is to allow small businesses to receive loan forgiveness if they make a good faith effort to rehire staff. In Iowa, where the average worker is receiving 120% of his or her normal salary by remaining unemployed, Republican Gov. Kim Reynolds has warned that refusing to return to work when a business reopens would be treated as voluntary resignation, thus disqualifying a worker from receiving unemployment benefits.
Republicans could insist that the renewal of enhanced unemployment benefits be accompanied by a plan to wind down the dollar amount as the economy reopens.
In March, lawmakers were addressing an immediate crisis, but there are still another three months before the enhanced unemployment benefits expire. Congress can and should cushion those who want to work, but without hobbling the economy.
