Conservative Economist Blames High Unemployment On 'Richer' Benefits

May 16, 2021
Originally published on May 17, 2021 1:53 am
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MICHEL MARTIN, HOST:

We're going to stay on this subject for a few more minutes because more than a dozen Republican governors have announced that they will no longer participate in the federal unemployment benefits program, which, as we've mentioned, supplies an additional $300 per week of federal money on top of state unemployment aid. These governors argue that this extra unemployment insurance, or UI, encourages potential workers to stay home.

We wanted to know more about that perspective, so we've called Douglas Holtz-Eakin. He is an economist who served in high-level positions in government and politics, including as director of domestic and economic policy for John McCain's 2008 presidential campaign. He's now president of the American Action Forum, which is a center-right think tank here in Washington, D.C., and he's been writing about this. And he's with us now. Douglas Holtz-Eakin, welcome. Thanks for joining us.

DOUGLAS HOLTZ-EAKIN: Thanks for having me.

MARTIN: So as simply as you can, why are Republican governors and business leaders so concerned about federal unemployment insurance? What's the evidence that supports their argument that it is encouraging people to stay home instead of pursuing work?

HOLTZ-EAKIN: So if it was not a COVID-19 recession, if it was a normal recession without the virus, we wouldn't do three things that we did just because of the virus. We wouldn't say you don't have to look for work to get unemployment insurance. And we wouldn't say that people who are self-employed and independent contractors are eligible for unemployment insurance. And we wouldn't give a $300 federal benefit on top of this - the usual state level unemployment insurance. That's the new features.

So imagine that you don't have a pandemic, and you're trying to recover. That's what these governors think, we're getting past the pandemic. Well, what do we know about unemployment insurance benefits? We know that the richer they are compared to what you made at work - so what fraction of your usual salary or weekly earnings the unemployment insurance covers - the richer that is, the longer our spells of unemployment. This, in many cases, is a very rich benefit. It's over 100% of what you usually made for 37% of people who are on UI. So that says that we expect to have long spells of uninsurance for those people.

MARTIN: Well, you know, the jobs figures came out, the unemployment figures came out last week. And many people were shocked. The economy only added about 266,000 jobs when many, many more were expected. Analysts thought as many as a million could have been added. Are you - are these governors pushing people to go back to jobs that don't exist yet?

HOLTZ-EAKIN: Oh, I think the concern is that the jobs exist. There are 8.1 million unfilled jobs in the U.S. economy right now. That's the largest number we've ever had. So we know there are jobs out there. We know employers are trying to hire. We just haven't been able to get people to show up and take those jobs.

So we're going down the list of usual suspects to try to figure out what could be getting in the way. We know there's some things like some people are still afraid of getting sick. They're not going to go out. Some people are taking care of their kids or schooling their kids because the schools and day cares are closed. Some are afraid to get on public transportation. And some may just be behaving like they normally do when unemployment benefits are extremely rich. They are wait - just waiting longer to go back to work.

MARTIN: Well, let's take some of those things sort of one by one, if we could. I mean, we spoke with the secretary of labor, Marty Walsh, last week after the jobs report was released. He acknowledged that the recent data was disappointing, but he also said that the American economy added an average of more than 500,000 jobs over the last three months, getting 1.5 million jobs in total. About 330,000 of those, for example, were in the leisure and hospitality industry. You know, many of those jobs aren't sort of lavishly paid. So wouldn't that prove that workers are returning to work despite those extra federal unemployment dollars?

HOLTZ-EAKIN: Well, what we know is average behavior. We don't know everyone's behavior. And you could never look at someone on the sidewalk and say, that's a person who won't go back to work because of UI. What we do know is that is an empirical regularity. It is, you know, time-tested. You look at the data, richer benefits mean slower return to work for people on average. We don't know specifics.

We are creating some jobs, which are in the hard-hit leisure and hospitality sector. That's where we lost the most jobs. That's really good news. I think what you saw was just the ambition of policymakers and Americans. They want to get the 8 million people who are out of work still back to work as quickly as possible. And so a quarter of a million jobs seem disappointing. In normal circumstances, it would be an outstanding month.

And the secretary has a very good point. You should never decide things on the basis of one month's data. Things bounce around a lot in the data. You want to look at those averages. Five hundred thousand is good. I think everyone would just like more.

MARTIN: Well, you know, you talked about the fact that you can't look at every individual person and sort of know what factors are motivating his or her or their decision-making. But let's talk about women. I mean, women have seen disproportionate job losses during the pandemic. About 2 million women have not returned to the workforce after having to drop out or feeling that they had to drop out. In April, another 165,000 women dropped out of the labor force.

So if the issue is caregiving responsibilities - you know, schools are open, but maybe not all the time. A lot of child care centers have closed. You know, they have not reopened yet, or they've not reopened at full capacity. If after-school programs aren't open, it isn't clear what's going to happen for the summer, how does cutting off benefits address that problem? I mean, we know that that's a problem, so how does cutting off these additional benefits address that problem?

HOLTZ-EAKIN: It won't address that problem. I mean, there are multiple reasons why people could not be going back to work. Certainly those are very legitimate reasons. And we're sure that's out there, and there's no question about it. I think what we know is that as the virus recedes, those activities - day cares and schools - should reopen as well. Things should, quote, "go back to normal." And in normal circumstances, we wouldn't have this array of extra benefits. So the governors are making the judgment that their states are getting back to normal, and we're going to go back to normal UI benefits.

MARTIN: So - well, before we let you go, you know I'm going to put you on the spot. Like, what would you do? If you were - at one point you were the head of the CBO, the Congressional Budget Office. You were the chief economist for the president's Council of Economic Advisers. What would you advise?

HOLTZ-EAKIN: I always thought the 300 was too large. And I always thought that it lasted too long - Labor Day. So I would begin right now ramping it down so that it decreases each month and expires on Labor Day. And that way, it steadily becomes less of an impediment as we steadily go back to normal with respect to the virus.

MARTIN: That was Douglas Holtz-Eakin, economist and president of the American Action Forum. Professor Holtz-Eakin, thank you so much for talking to us.

HOLTZ-EAKIN: Thank you.

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