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The Democrats’ Dumb Idea to Cut Pandemic Unemployment Benefits

This week’s job numbers demonstrate that this is no time to compromise with Mitch McConnell.

Stefani Reynolds/Getty Images

Unemployment fell for the second straight month, the Bureau of Labor Statistics reported today, from 13.3 percent in May to 11.1 percent in June. This constitutes further evidence that the $600 addition to weekly unemployment benefits provided by the Cares Act is not, as feared, dissuading workers from returning to their jobs. Yet Senate Democrats are preparing to whittle that benefit down anyway.

The House passed a bill in May that would extend the $600 sweetener, which is scheduled to end at the end of this month, through January. But Senate Republicans don’t want to do that. “We’re hearing it all over the country that it’s made it harder actually to get people back to work,” Senate Majority Leader Mitch McConnell complained Tuesday. Senate Democrats are proposing a compromise—despite ample evidence that the $600 sweetener is not keeping very many people from going back to work. If it were, then unemployment wouldn’t have gone down in May and then gone down again in June.

It’s true that adding $600 to weekly unemployment checks enables two-thirds of those eligible to collect unemployment benefits that pay out more generously than their original wage, according to a May study by three University of Chicago economists. As I explained here last month, Congress overshot its mark and ended up redistributing some income downward entirely by accident. The $600 figure was arrived at through a back-of-the envelope calculation of how much unemployment benefits would have to be increased in order to assure that the typical worker, displaced during the pandemic, would receive a payout commensurate with their original salary. The coronavirus-driven layoffs, however, affected low-wage workers disproportionately, especially those in the restaurant and hospitality industries. Consequently, the $600 sweetener replaced, on average, not 100 percent of income, but 130 percent of income.

This is not the social calamity that McConnell thinks it is. People who are on unemployment benefitseven when they’re lucrativeknow that they will run out eventually and that when that day comes they’ll need a job. They also know that the longer they’re out of work, the less likely they will be to get any job, let alone a job with wages comparable to their last job. So they try to get a job quickly. Two months of falling unemployment tells us that a significant number are succeeding. So does a Brookings paper released June 25 that found “no evidence, at least to date, that high unemployment insurance replacement rates encouraged layoffs or discouraged re-hires. If anything, we find that more generous replacement rates are associated with shallower declines and more rapid recoveries.”

Have I mentioned that generous unemployment benefits are one of the few things keeping this economy afloat at the moment? Josh Bivens, an economist at the left-leaning Economic Policy Institute, estimates that extending the $600 sweetener through July 2021 would boost gross domestic product by 3.7 percent.

However, Senate Democrats, led by Chuck Schumer, propose ratcheting down the $600 add-on according to an individual state’s unemployment rate. If unemployment is more than 11 percent, then people collecting benefits get the full $600. If it’s more than 10 percent but less than 11 percent, they get only $500. Benefits drop $100 for every additional percentage point the rate ticks down; if unemployment falls below 6 percent, there’s no add-on at all.

The logic here is that as unemployment goes down in your state, then your likelihood of being able to get a job will go up. But if unemployment is going down in your state, then the work disincentive created by the $600 can’t be much of a problem.

It’s not even clear that we want unemployment to go down further just now.  According to the BLS’s May figures (the June breakdown isn’t yet available), Alabama, Georgia, and Arizona all have unemployment rates below 10 percent. If they sustained that level over three months, then under the Senate proposal, weekly unemployment benefits would fall by $200 in Alabama and Georgia, and by $300 in Arizona (where unemployment is below 9 percent). But these three states are all coronavirus hot spots. Covid-19 hospitalizations are up 21 percent in Alabama over the past 14 days, according to Kaiser Health News; by 37 percent in Georgia; and by 75 percent in Arizona. That’s a pretty high price to pay for keeping unemployment below the national rate.

At the moment, further declines in unemployment are a fairly theoretical proposition. Although the Trump administration sees the health crisis and the economic crisis as two separate calamities, they are the same problem, and as Covid-19 cases increase we’ll likely see states back away from plans to reopen. (We’re seeing that already in New York and California.) That will drive unemployment percentages back up, making even more unwise the planned termination of the $600 weekly benefit.

If Congress doesn’t like paying people so much money not to work, it might think about making work pay better by raising the hourly minimum wage, currently $7.25, to $15. A person who works a 40-hour week at $15 per hour earns, as it happens, $600. Nobody’s advertising the $600 sweetener to unemployment benefits as a victory for Fight for $15, but that’s what it is.

President Donald Trump hinted Wednesday that he may have a proposal soon on minimum wage, by which he presumably means an increase. “I’m going to have a statement on minimum wage,” Trump said. “I feel differently than a lot of people on minimum wage—some people in my own party.” (He may have been thinking of Larry Kudlow, director of his National Economic Council, who opposes there being any federal minimum wage at all.)

During the 2016 campaign, Trump—whose various statements on minimum wage have been wildly contradictory, even for him—ended up proposing a $10 minimum. Then he forgot all about it after he became president. If Trump now proposes a minimum wage hike but doesn’t go all the way to $15—as the House did in the minimum wage bill that passed almost a year ago and then stalled in the Senate—then congressional Democrats, knowing the next election is less than four months away, will likely scorn his proposal as too little, too late.

But things suddenly get very interesting if Trump endorses a $15 minimum wage. Last year, he blurted out that he was “looking at” it, whatever that means. What if Trump actually put a $15 minimum wage on the table now, when his ghastly blunders on Covid are finally draining away his support and making his reelection look pretty unlikely? Very possibly Senate Republicans would judge it a desperation move and refuse to fall in line. The minimum wage workers who would benefit the most don’t typically vote Republican anyway.

But as candidate Trump famously (and offensively) said four years ago to an audience of African Americans: What the hell does he have to lose?