The hopes for a booming pandemic recovery — growth led by jobs gains in the millions every month — were dealt a blow in recent weeks by a disappointing April jobs report. Perhaps we will see better when results for May are released this week, on Friday. But, for weeks, many in Democratic policy and political circles have been queasy about addressing the connection between federally supplemented unemployment insurance benefits and the slowing pace of re-employment at this stage of the recovery from the pandemic. There is almost certainly a common sense connection: If you were a low-wage worker, why aggressively attempt to go back to work at a lousy, low-paying job, when you can make more money collecting unemployment benefits.
Still, Republican politicians are getting it wrong too. They are citing countless news reports that businesses are struggling to fill certain positions as both a reason to end federal unemployment benefits and as evidence that the extra benefits were too generous in the first place. They worry that the ability of some workers to stay on the sidelines of the labor market, unless employers offer wages that trump jobless benefits, could result in dangerous “wage inflation” — a potential increase in labor costs that, they believe, consumers will pay for in the form of higher priced goods and services.
That argument simply does not hold water either: Over the coming weeks and months as this aid for the jobless phases out, there will be a flood of anxious job seekers pouring into labor markets. Even if a significant share of workers are temporarily avoiding taking low-paying jobs while benefits remain generous, then there is no true “labor shortage,” as many economists and market commentators are calling it.
When Congress passed the CARES Act last May and the American Rescue Plan Act this March, it was hard, even impossible, for policymakers to forecast the demand for labor or the pace of the economic recovery. The pandemic was still stubbornly lurking. The economic (and humanitarian) risk of doing too little far exceeded the risk of being generous. And in spite of some recent comments from Democrats facing political pressure, the entire point of the enhanced unemployment checks, at least originally, was to tide Americans over until it was safe for more people to work again.
Now enhanced benefits are ending every day for the millions of Americans who have benefited from the Pandemic Emergency Unemployment Compensation, or PEUC, program, which extends unemployment insurance for 13 weeks to those who exhausted their conventional state and federal unemployment benefits. All extra federal supplements for the unemployed will end on Sept. 6, including the general $300 weekly benefit, as well as the Pandemic Unemployment Assistance, or PUA, program, which provides aid to those who were self-employed. (Some states are in the process of cutting them early.)
Republican-controlled states, as well as some more politically mixed states, are doing this because they presume there is a macroeconomic upside to millions of workers returning to lower-income jobs. They shouldn’t be so sure.
In the aggregate, during the week that ended on May 1, the unemployed were still receiving almost $10 billion in federal transfers per week — that’s money being directly injected into local economies. Shutting off that pipeline means the economy at large could experience one of two adverse outcomes: Either there won’t be enough jobs for the people eventually looking for work because so many businesses closed during the pandemic, or the jobs left over will be, frankly, lousier jobs. This latter possibility would leave a large share of Americans underemployed, which would cause a wide reduction in household income among the country’s less wealthy half.
Neither the financial markets, nor most policymakers, seem to expect a contraction in household incomes this autumn. But the probability is likelier than they think. Just imagine seeing millions of new jobs added over the next few months and unemployment falling, all accompanied by a decline in household spending by workers who are then only able to access the low-wage, low-hours jobs they had before the pandemic. As with much else during the pandemic recession, the pain and the recovery are uneven.
The majority of the jobs that aren’t back to prepandemic work force levels are very low-income jobs; they are what the U.S. Private Sector Job Quality Index, which I cocreated, calls low-quality jobs. Through March of this year, most of the private sector jobs eliminated during the pandemic that haven’t been restored are production and “nonsupervisory” jobs that offered weekly pay averaging less than $750 prepandemic. There are more than 45 million low-paying jobs like these, constituting roughly 43 percent of all production and nonsupervisory jobs in the country. This is not about a mere, unfortunate corner of the jobs market.
23 million of these jobs paid under $500 per week prepandemic: That’s $23,000 per year. Not only are the wages low: Many of these jobs offer well below 30 hours of work per week.
For those wondering about the connection between these employment and compensation numbers and the broader partisan debate about unemployment insurance, here’s the rub: When you add normal state unemployment benefits and the federal supplements together, $750 per week from the government is a fairly typical benefit for an unemployed American. (Some states go lower, others higher.) And it is safe to assume that someone getting $750 per week for not working is not eagerly jumping up to go back to work for potentially hundreds of dollars a week less.
The chronic problem we face as we put Covid-19 in the rearview mirror is that the U.S. economy before the pandemic was incredibly dependent on an abundance of low-wage, low-hours jobs. It was a combo that yielded low prices for comfortably middle-class and wealthier customers and low labor costs for bosses, but spectacularly low incomes for tens of millions of others. This dynamic was first brought into stark relief by the discourse about “essential workers” during the worst of the pandemic. Now it will be highlighted by the frustrating, unequal outcomes of this Great Reopening.
If, in this summer interim, the remaining federal benefits for those without jobs pressures some employers to increase wages and offer a more full-time hours to their employees, then that is all to the good for them and the sturdiness of our economy. The good news for workers is that wages tend to be “sticky” and hard to reverse. Sadly, employers are aware of this too, and many are offering signing bonuses and other perks instead of increasing wages.
Some progressives may take me to task for admitting that emergency unemployment benefits, which served many so well, are now keeping some people from returning to their lousy, pre-crisis work. But why, as a former Obama administration economist pointed out, fight common sense or parse the data for more complex explanations? Instead, why not absorb the lesson being taught?
It’s pretty simple and one that, normally, progressives fight to have heard: businesses are paying tens of millions of workers too little money relative to the cost of living in this country.
Daniel Alpert (@danielalpert) is a senior fellow in macroeconomics and finance and an adjunct professor at Cornell Law School. He is the founding managing partner of Westwood Capital and the author of “The Age of Oversupply: Overcoming the Greatest Challenge to the Global Economy.”
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