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May 7, 2021

Government Funds the Labor Shortage

Lavish unemployment benefits (a.k.a. income redistribution) are creating economic trouble.

The U.S. added 266,000 jobs in April, which sounds great until you realize that economists were giddily predicting one million new jobs. Axios reports that is “the biggest miss, relative to expectations, in decades.”

If that wasn’t bad enough, March’s numbers were revised downward from 916,000 to 770,000.

All Joe Biden had to do was take the baton from Donald Trump’s stellar pandemic recovery and run with it. Instead, he’s stumbling up the stairs.

While the unemployment rate makes its slow recovery from the pandemic, rising to 6.1% instead of dropping to 5.8%, one aspect of the government unemployment benefits is drawing scrutiny because it’s exacerbating the problem.

After millions of Americans lost their jobs last year thanks to the China Virus-inspired and state-imposed lockdowns, the federal government adopted a relatively novel concept: Our Washington caretakers supplied the cash to supplement state unemployment benefits by $600 a week while expanding the universe of those who could collect unemployment benefits to include several classes of workers who previously would not qualify, such as those who are self-employed, independent contractors, or people who didn’t have enough time at the job. All of these people suddenly became the recipients of $600 a week from the federal government to go along with the benefits for which their state deemed they qualified. (Some states were more lenient in that regard than others.)

While that extra cash has since declined to $300 a week, initially there was some symbolism in the amount. It just so happens that $600 is the exact gross pay for a worker who toils 40 hours a week at that magical wage of $15 per hour.

That became a bit of a problem, however, since many of those who received these benefits were making less than $15 an hour at the job from which they were furloughed. The government was paying them more to not work than their job was to clock in every day.

Thus, the Wall Street Journal reports, “In a red-hot economy coming out of a pandemic and lockdowns, with unemployment still far higher than it was pre-Covid, the country is in a striking predicament. Businesses can’t find enough people to hire.” The anecdotal evidence is certainly there. Ask any restauranteur near you if he’s been able to find enough workers.

James Freeman, also of the Journal, says we’re in the middle of the worst worker shortage ever. Factors include closed schools and continued fear of COVID, but the elephant in the room is “supplemental unemployment benefits that discourage work.”

Naturally, there were studies last summer revealing that this additional payment would be a disincentive to go back to work, though others contended that most workers who returned to work were taking a pay cut to return to their job because they realized the benefits were temporary. (Again, it was relative since states often waived the requirement that recipients return to their old job based on self-reported health or family issues.) In the latter study, it’s worth noting that the author, Ernie Tedeschi, now works for the Council of Economic Advisers in the Biden administration.

Some states, however, have seen enough and are siding with those who believe the supplemented unemployment payment is a disincentive to work. Florida will soon require proof that residents receiving unemployment benefits are actually looking for work, a stipulation waived during the pandemic. “Normally when you’re getting unemployment, the whole idea is that’s temporary, and you need to be looking for work to be able to get off unemployment,” Governor Ron DeSantis said. “It was a disaster [at the beginning of the pandemic], so we suspended those job search requirements. I think it’s pretty clear now, we have an abundance of job openings.”

South Carolina Governor Henry McMaster is taking similar action to cease special COVID provisions regarding unemployment.

And the state of Montana announced this week that it will no longer add the $300 weekly subsidy after June 27. However, the state’s stick comes with the carrot of a $1,200 bonus for workers who are currently unemployed to find a job and retain it for four weeks. The funding for that program comes from federal COVID relief money allocated to states in March.

While Montana is taking a necessary step by eliminating the subsidy, one gets the sense that the side of rationality is losing the argument. If you think a little outside the box, ask yourself why the federal government came up with the idea of paying a direct and bigger subsidy to a larger group of recipients as opposed to shoring up state unemployment insurance funds and simply extending benefits for months as it did a decade ago during the Great Recession.

There’s a deeper problem, though.

You may not remember Democrat 2020 presidential candidate Andrew Yang, but his main platform plank — one that kept him in the race through the New Hampshire primary — was that of universal basic income. It’s not really a new idea, though. The stimulus payments sent out by both Presidents George W. Bush and Barack Obama softened resistance to the later checks from Presidents Donald Trump and Joe Biden — making it four presidents in a row who have sent out a special government stimulus check during economic downturns. Now add to this the enhanced unemployment benefits and we continue to build the expectation that one of Uncle Sam’s primary jobs is to assist people financially.

Thanks to the avalanche of government money, if there is a crisis and shortage in this country, it may be that of work ethic. Trust us, we all pray for a “prove us wrong” moment on that one.

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