As Congress aims to pass another coronavirus relief package, the Trump administration and Republicans on Capitol Hill are insisting on a reduction to the weekly federal unemployment insurance benefit, arguing that the extra $600 a week that Congress provided for the jobless early in the coronavirus outbreak has created a disincentive for people to go back to work. They want to reduce the boost to only $200 a week.
It’s an incredibly bad idea, based on specious logic and stereotypes. Extending the benefit at $600 is needed to combat the persistently high unemployment rate and to prevent an even worse economic collapse. Indeed, putting money directly into the pockets of Americans is one of the most important steps Congress can take to contain the economic fallout from COVID-19.
That’s because providing Americans with more money not only helps to keep millions of families out of poverty but also ensures that people keep spending money, which is crucial if businesses are to stay afloat. “The empirical evidence is extremely strong that the UI benefits have had a huge consumption stimulus effect,” said Arindrajit Dube, a professor of economics at the University of Massachusetts Amherst. “If people are going to lose that $600 boost, that is a disaster both for people’s lives as well as for the economy because that consumption drop is going to lead to more job losses.” Just last month, Massachusetts had the highest unemployment rate in the country.
The concern that generous unemployment insurance benefits might disincentivize work may seem to have a superficial logic. After all, more than two-thirds of Americans who qualify for unemployment stand to make more money than they did when they worked — a statistic that is more telling of the sad state of the economy’s wages than it is of how generous the unemployment benefit is. But that line of reasoning is flawed for three reasons.
First, even if the weekly $600 financial assistance is extended, workers receiving the benefit know it will eventually expire. In 2016, Dube found that the unemployment insurance during the Great Recession did not stymie job growth. “It makes a lot of sense, given that these are temporary benefits and people aren’t going to take a risk of not returning to their jobs when they’re called,” Dube said. There is already evidence that Americans have been returning to work in spite of receiving an additional $600 each week for being unemployed: Both May and June saw record-breaking numbers with regards to jobs added, and the unemployment rate declined during that period.
Second, workers who fail to look for work or turn down job offers risk losing their unemployment benefit. While the CARES Act — which created the weekly $600 aid for unemployed workers — expanded the acceptable causes for refusing to go back to work while still qualifying for unemployment benefits, people still have to provide a valid public-health reason for not returning to work. That’s also the reason the unemployment benefit is more generous than in previous recessions: It gives workers the opportunity to stay at home in order to mitigate the spread of the coronavirus without causing their households extreme financial stress. In other words, it’s not the extra cash payment that might discourage people from working; it’s the public health crisis that’s killing over 1,000 Americans every day.
And third, the reason the unemployment numbers are so high is because there simply aren’t enough jobs to go around. “Even if some people searched harder [for work] because suddenly you took away that $600 benefit, when the number of job openings are so much smaller than the number of people searching for jobs . . . it’s like a game of musical chairs,” Dube said. “In a very down labor market, incentivizing people to search harder is self-defeating.”
Yet in spite of this evidence, Republicans have opted to peddle the myth that people, at their core, are lazy and unwilling to work, evoking the racist stereotype of the “welfare queen” instead of ensuring that Americans can pay their bills, do not fall into poverty, and still spend money in an economy starved for consumers.
Is it possible that there will be a few cases where people choose not to return to work because the unemployment benefit is higher than their wages? Of course. But that number will be negligible. “These risks are so small compared to the really big risk, which is that all of these people — as opposed to some minute fraction who may not go back to jobs — are going to cut back on spending when they lose that benefit,” Dube said. “And that is going to be yet another unforced error in the set of many unforced errors that our government has done in handling this pandemic.” That’s an outcome Democrats in Congress should fight to prevent.
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