After months of being crippled by the coronavirus and the resulting lockdowns, the economy is gradually improving. Jobs are coming back, and businesses are reopening. But that progress will hit a brick wall if Democrats get their way and lawmakers recklessly extend enhanced unemployment benefits, which will create a significant disincentive for people to return to work.
A staggering 21 million people lost jobs in April, a record by many orders of magnitude. But then, the economy confounded experts in May and June by adding back 7.5 million jobs — again, a record. The unemployment rate, which had been at a 50-year low of 3.5% just before the coronavirus lockdowns and had soared to 14.7% in April, declined for two straight months and stood at a less unreasonable 11.1% in June.
On July 9, weekly jobless claims slowed to 1.3 million. While still high by historical standards, the number was lower than expected and well below the stunning 6.6 million claims filed in just one week of April.
With many parts of the economy still closed or were severely constrained either by government policy or consumers’ unwillingness to engage in some activities with a higher risk of spreading the coronavirus, there is still a long way to go to recovery. But the recent uptick in hiring suggests that the economy could rebound if given the chance.
Democrats, however, want to extend a provision of the coronavirus relief package that has been giving $600 a week to unemployed individuals on top of the normal unemployment benefits. When the outbreak began, there was some justification for adding this extra bonus as a short-term stopgap, given that governments at all levels were forcing businesses to close. But this was never intended to become a new, open-ended entitlement, which is why Congress at the time rightfully set the benefits to expire at the end of July.
Now that the expiration is approaching, Democrats are engaging in their usual fearmongering in order to pressure Republicans and President Trump to extend the extra benefits. The Democrat-controlled House has already voted to extend the enhanced benefit through next January.
The problem is that, in many cases, this extra bonus penalizes work. It means that people on unemployment are actually earning more money by staying home and collecting the benefit than they would if they were to return to work.
Don’t take our word for it. The nonpartisan Congressional Budget Office has estimated that, were the enhanced payments extended through next January, five out of every six recipients would be receiving more money than if they were working.
The projections found that employment would be lower for the rest of this year and next year than if the enhanced benefits were allowed to expire and that the extension would be a drag on economic output in the long run. The CBO noted that the extension would “weaken incentives to work as people compared the benefits available during unemployment to their potential earnings, and those weakened incentives would in turn tend to decrease output and employment.”
Instead of a straightforward extension, Senate Democrats have proposed only cutting the benefit once unemployment goes down in a given state to below 11% for three straight months. The $600 would only decrease by $100 for each percentage point drop in the unemployment rate until it reached below 6%.
But the mechanism of this proposal is circular. That is, the longer that the enhanced unemployment payment stays in place, the more slowly the unemployment rate will fall and the longer it will take to phase out the enhanced unemployment benefits. Under the Senate Democrats’ proposal, the enhanced unemployment checks could last far beyond January.
The enhanced benefits are set to expire at the end of July if Congress takes no action. Republicans still control the Senate, and they have no excuse for acquiescing to an extension of the unemployment bonus. Republicans need to stand their ground and reject Democrats’ efforts to stunt economic recovery.
