To say there’s considerable debate about the extent to which enhanced unemployment benefits are holding back the US labor market would be a good candidate for economic understatement of the year.
This debate, like almost every debate in America these days, is hopelessly politicized. The GOP relies on a tried-and-true tactic to argue that generous benefits for the jobless are an impediment to labor market progress: Republican lawmakers lean on what sounds like common sense, and declare the case closed.
I’m a big fan of common sense, but I’m also a big fan of nuance, and the two sometimes find themselves at odds. The other problem with common sense is that those who use it as a cudgel almost habitually fail to differentiate between it and conventional wisdom. They aren’t the same thing. Conventional wisdom often withers under scrutiny. Scrutinizing conventional wisdom sometimes shows it to be the very opposite of common sense (in those cases, “wisdom” becomes a ridiculous misnomer). Conventional wisdom around public debt and federal deficits in advanced, currency-issuing economies is a good example.
The unemployment benefits debate is a case where common sense and conventional wisdom are, for the most part, compatible. All else equal, we can generalize that the less financially precarious it is to remain unemployed, the lower the incentive to find a job. Again, that’s a generalization. And all else is never equal. But, my unapologetic Progressivism notwithstanding, you simply can’t argue that enhanced unemployment benefits aren’t at least a factor in explaining labor market frictions. To do so is to be willfully obtuse and to flout common sense in a case where it most assuredly has some explanatory power. In aggregate, around 14 million people are receiving unemployment benefits across various programs.
The better argument for Progressives — and I’ve made this point over and over — is to suggest that to the extent enhanced benefits are keeping the jobless sidelined, that’s a step towards reestablishing labor’s leverage after decades of allowing capital to accumulate almost unchecked power across the economy. Because that power, in all its various manifestations, tends to grow exponentially (it’s not a linear process), concentration becomes more and more acute until… well, until billionaires get so bored that they start racing each other to the edge of space, for example.
The partisan divide is on full display in the media. Consider the following two excerpted passages.
From The New York Times:
By lunchtime, the representatives from the recruiting agency Express Employment Professionals decided to pack up and leave the job fair in the St. Louis suburb of Maryland Heights. Hardly anyone had shown up.
“We were hoping we would see pre-pandemic levels,” said Courtney Boyle, general manager of Express. After all, Missouri had just cut off federal unemployment benefits.
Business owners had complained that the assistance, as Gov. Mike Parson put it, “incentivized people to stay out of the work force.” He made Missouri one of the first four states to halt the federal aid.
Work-force development officials said they had seen virtually no uptick in applicants since the governor’s announcement, which ended a $300 weekly supplement to other benefits.
From The Wall Street Journal:
The number of unemployment-benefit recipients is falling at a faster rate in Missouri and 21 other states canceling enhanced and extended payments this month, suggesting that ending the aid could push more people to take jobs.
Missouri Gov. Mike Parson said the benefits were helpful during the height of the pandemic, but their continuation has “worsened the workforce issues we are facing.”
He, like many other Republican governors, moved to end the federally funded benefits to address businesses’ concerns about a labor shortage. The state’s unemployment rate was 4.2% in May, well below the national average of 5.8%.
So, who’s right? Well, both probably. Or neither, depending on how you like to characterize situations where neither side has an answer. (I would gently note that it’s becoming more difficult over time to take the Journal seriously when the paper insists on flanking its still formidable array of quality journalism with links to its “opinion” pieces and “editorials” which carry titles like “Hunter Biden’s laptop is real.”)
When it comes to the nuance, Morgan Stanley offered some helpful perspective in a new note. “Though half of US states are in the process of ending the [pandemic unemployment] programs early, as yet there is only mixed evidence on whether or not it has moved the needle on labor supply,” the bank said.
Morgan noted that while states which ended benefits June 12-19 saw continuing claims fall more than 12% on average over three weeks versus just a 3.7% decline for states which intend to keep the programs in place through September, that latter figure is skewed by Kentucky, Kansas, California and Washington. Omitting those states, the decline in continued claims from May 29 through June 19 was -8.5% for states where UI benefits will be in place until September.
Importantly for market participants attempting to read the tea leaves on what the expiration of the benefits in September will mean for the labor market and Fed policy, Morgan reminded folks that the 22 states which already stopped supplemental benefits accounted for just a quarter of the national payrolls shortfall and just 26.5% of unemployment benefit recipients, as of the end of May.
(Note: The figure, above, takes Morgan’s math at face value — I haven’t personally checked those numbers.)
The other 26 states (plus D.C.) account for nearly three-quarters of the payroll shortfall and unemployment recipient claimants. In other words, as the bank’s Sarah Wolfe wrote, “the vast majority of those unemployed will be covered until September 6.”
And that’s really the key point. This most important of all questions about the US labor market (i.e., To what extent are enhanced benefits exacerbating frictions and/or “holding us back”?) simply can’t be answered until autumn, at the earliest.
My contention continues to be that no definitive answer is forthcoming. For some Americans, the pandemic may have been the final straw. Underpinning the US services sector is the dubious notion that it’s somehow more dignified to be broke and employed than destitute and unemployed. It’s possible that a sizable contingent of workers will no longer accept that as a rationale for reentering the labor market in leisure and hospitality.
One of the more delightful anecdotes from the most recent vintage of the ISM services report found someone in Accommodation & Food Services lamenting “employee- and management-staffing constraints.”
“Some locations cannot open for business or have limited hours, as we cannot staff the restaurant to meet consumer demand,” the ISM respondent said.
Why is that anecdote “delightful,” as I described it? Certainly not because I’m thrilled at the prospect of small restaurants (or even locally-owned restaurant groups) being unable to open the doors. I wish nothing but the best for such restaurateurs.
Rather, that quote is delightful as a comment on the labor-capital relationship more generally, as it lays bare a reality that’s been obscured for most of the last four decades. For all its swagger and power, capital needs labor.
Barring complete automation, you simply can’t provide services or produce widgets if workers refuse the terms on offer. Unless of course you want to do it yourself. And you’re capable, right? After all, you make ~300 times what your workers make (figure below).
Nice comp. Now can you pour a draught beer correctly? (It’s harder than you think.) Or can you work the assembly line? (It takes more skill than you’d expect.) In fact, do you even know how to clock in? And take off those damn slip-on moccasins, for God’s sake — you’re going to fall and hurt yourself.
What does capital do when the threat of economic precarity is no longer sufficient to attract workers?
“You’ll either accept this bad bargain, or you’ll starve, lowly waitress.”
“I heard you. And I think this time, I’ll just starve. But not quite yet. Because I still have two weeks of enhanced UI left. So, if you want to keep these doors open for another day, you’ll take off that tie and blazer, hustle back to the kitchen and cook me a burger.”
H: this is even better than your “blank check” diatribe! You are awesome ?
Thought provoking as always. Makes me think about Dalio’s commentary about who the economy is working for, by what percentage and how much that will change over time. Our elbows out way of capitalism needs a bit of an upgrade if the “working” ratio is to improve.
As the wealthiest tribe on Earth, our tribal members deserve a living wage because no one should be living on the streets or starving.
I generally don’t like handouts (money for nothin), but I am not opposed to more government programs that employ citizens. Especially because, as a country, we can get what we collectively decide we want/need not only for now but also for the future without concerns about making a profit. Better education and healthcare, more housing and protecting Mother Earth for future generations all come to mind. Probably could even redirect some existing defense workers but we certainly don’t need “pyramids”.
Not only would citizen workers receive a living wage (because the government can decide to pay that) but our country could leave something of value for future generations as a result of the money that is either printed, borrowed or collected. Also, we would no longer need to argue over a minimum wage law and no one would be forced to accept a $12/hr bussing job- without healthcare.
The problem with repairing roads, as compared to building the original interstate highway system, is that the construction of the original interstate highway system resulted in an economic boom (national commerce) beyond just the wages that were paid for the actual construction project. Believe me, our roads need repairing (I put about 20,000 highway miles on my car during covid)- but that is just “maintenance”, not “building for the future”.
I have been reading up on the golden Edo period of Japan, when government projects (i.e, building of walls to contain marshes and a system of aqueducts to provide drinking and farming water) resulted in an economic and cultural boom to what was at the time, one of the largest cities in the world and is now called Tokyo.
Mad dogs bite. There is no need to discuss the rationality of their behavior. The GOP is determined to end all government social programs, privatize the profits and socialize the losses of every endeavor. There is no need to discuss the rationality of its behavior either. They are what they are and eventually they will both doom themselves through their own actions.
Case in point: Wyoming ended the enhanced unemployment benefits. At that time, Campbell County had 324 people filing unemployment claims. The unemployed lost the federal $300 per week, local businesses did not see the $388,800 per month (324 people X $300 X 4 weeks/month) that would have been spent on food, fuel, rent and services. The state and county did not get their $19,440 in sales tax either. Economists tell us that a dollar spent locally turns over seven times. If that is correct, the governor’s action will cost Campbell County businesses $2,721,600 per month. But that’s OK, we can blame it all on Obama’s war on coal and those ‘takers’ can get a job.
After a brutal legislative budget session where the few existing Wyoming social programs got the ax due to decreased revenues, we learn that the American Rescue Plan funding represents a 22.7% budget increase for Wyoming. What to do? We’ll deal with it in the 2022 session. What are we going to do with the extra cash? We are the GOP so we will “support stimulus over relief” and “create capacity for the future” per our governor. Which means more stimulus cash for oil, coal and construction companies from other states. Will it trickle down? Nope, not here anyway.
What a damning condemnation of GOP ideology.
I’ve come to believe that the new “conservative” ideology is mainly based on resentment = why are blacks/other darkies/immigrants getting free child care, cell phones, cars and housing while I slave in two jobs?
Or, as a musician friend complained to me the mother of his two kids was unable to collect more welfare because “those people are taking the money we should be getting.”
The GOP has tapped into something wired into our DNA. And not just ours- chimps, dogs and crows will stop performing a routine that results in a treat if they can see another getting a better reward for doing the same task. “Why is he getting a grape when I just get a pellet?”
The GOP base would rather see no one get anything if it means that some other group will maybe get more than them.
Well put. And when does a society notice that a past dominant force has turned to the dark side and must be stopped. Not a good idea to try the remake without a well thought out strategy. The good news is that little spaceship earth seems to be able to take a punch or two.
In the UK, it’s called “The Tall Poppy Culture”. This is America, what did you expect after 3 generations of a country that bombed it’s economic rivals back to the stone ages?
Rags to Rags in 3 generations.
Beneath the GOP or “conservative” ideology is a three legged stool …
1) Greed
2) Bitterness
3) Ignorance
Beneath the stool is a sandlike foundation of deep distrust against oneself and greater humanity.
The US economy is a supertanker. 1980 began a serious march to huge economic inequality. That and close elections are very destabilizing. Demographics are also an elephant in the living room. 58% of bankruptcies are due to healthcare. Clearly if eveyone who has no money had free healthcare and if most of us didn’t get our healthcare at work the underpinnings of society would improve. Crony capitalism and regulatory capture need to be adressed as well. These are not only left right issues. I am a huge fan of the question cui bono? Somebody clearly likes things the way they are now. It’s not just what the political class does, it’s what they don’t do…..
Conservatives create poor people who beg at the side door of the church to have their children indoctrinated.
Imagine that, Americas working poor are taking a summer vacation. The only sad part is that they will be going back to work as the benefits end and the Republicans will take that as proof positive for what they consider a moral religious Highground.
If Jesus didn’t take a break from being a Carpenter maybe the world wouldn’t be in such a mess.
There is a lot of new business formation going on.
As an ex- Republican, I agree with everybody’s opinion of the conservative outlook on society. Without those benefits, we would have had a second Great Depression, or worse.
Instead of record homelessness, we have pre-pandemic box office tallies again.
Let everybody keep spending, the rest will work out.