CNBC ran a story recently about a spa owner who obtained Paycheck Protection loans of over $220,000 from the government (as part of the recent Congress-passed coronavirus relief bill) and thought her employees would be overjoyed that they get to keep their jobs. Instead, they were furious because they could have collected more money in unemployment than they would have by continuing to work.
The CARES Act has set unemployment so generously high that now there is a perverse incentive for (some) people to go unemployed rather than stay at their jobs.
Debating whether or not the CARES Act set unemployment benefits too high. The urgent nature of the coronavirus situation probably rushed the bill through without enough debate or scrutiny - not that Congress had much choice, but the CNBC story does give credence to what some Congressmen argued - that if benefits were too high, it might perversely incentivize people to seek a layoff than to continue being employed. Indeed, we had a Doper boss who started a thread about this very topic in IMHO a few weeks ago, regarding an employee of his.
I suppose those people can quit and hope they get a job when things get better. The fact that some people are upset isn’t a reason to change a policy. Considered reflection might be a good idea…so maybe around Jan 2021.
Thanks for the clarification. Obviously as benefits increase, the incentive to not return to work increases. That’s always the case. I don’t think the mere existence of perverse incentives is sufficient to not enact some policy. So then we’re left balancing pluses and minuses along the sliding scale. Which I will think on after my call with clients that starts now.
This is going to vary depending on high your wages were beforehand, and that will vary with expensive vs. cheaper states, right? So, to fix this, they would have had to had smaller supplements for low wage states (often, red states) and more help for high wage state (often blue states). Since Mitch McConnell and Donald Trump’s position on blue states is "fuck you and the horse you rode in on), that wasn’t going to fly. So, low wage states are getting more than they need, and high wage states are getting less.
I’ll see if I can find the cite before my five minutes is up.
Here’s a good cite, although the red state/blue state correlation isn’t perfect of course:
It shows the states that are giving out more than wages vs less than wages, once the CARES Act supplement is included.
An additional $600/week is probably too high in principle, yeah. That works out $15/hr if one were to work 40 hr/week for the same $600, and this is on top of whatever state benefits one might receive. Median personal income in the US is only $40k a year or $19.23 / hr (assuming 40 hrs/week x 52 weeks/year).
That said, the $600 bump only lasts through July 25. If you have a steady job, I’d think you’d have to be fairly risk tolerant and/or be earning a pretty crappy wage to make the uncertainty worth it. I can see that if you were making minimum wage, “please lay me off” might be an attractive option for the next three months.
The initial draft was to give employees 100% of their salary/wage, but apparently most state systems couldn’t be updated to do that in a short period of time. So what got settled on was the blanket $600 increase, which would get the median worker to 100%. Not the policy anyone wanted, but probably the best of the available outcomes.
It’s also good stimulus. Most of it will get spent. In the grand scheme of things, I am not too horrified at the idea that some people will get to live like their betters on $3k a month.
Not exactly. Congressmen, such as Graham, were arguing that people would quit in order to go on the dole, completely oblivious to the fact that quitting would make them ineligible.
Again, I think it’s a better choice than the others that were on the table, but in a perfect world where state unemployment systems were more easily malleable, paying people more to not work than they’d make working is not a good idea. If you really want the stimulative effect, give people the money and don’t make it contingent on being unemployed.
Conservatives always seem to see incentives as “perverse”. Why is that?
I mean, I get it. How dare the low-wage worker decide that they’d rather stay at home and watch TV than put their life at risk for low wages and all the other shittiness that comes with thankless menial jobs. But the problem isn’t in the hand-outs designed to help people weather an emergency situation. The problem is that we have so many so-called essential jobs where people are treated like trash and are undervalued.
How about we require businesses to pay their employees more when society is under lockdown mode? If your business can’t stay afloat if everyone gets paid wages comparable to what they could get staying at home, then maybe it isn’t really an essential business. Or perhaps we can collectively put pressure of federal and state government to give essential workers a bonus, totally bypassing their employer’s pocketbook.
Instead of a “perverse incentive”, we could provide a “morally upstanding” incentive. But this would require having enough political will. As long as we have a bunch of conservatives in Congress, it isn’t going to happen.
Well now we know who clicked the link in the OP and who didn’t. The workers in question are being paid by their employer to stay home. They are not being asked to risk their lives. They are not essential employees. This is not an essential business.
Money that replaces lost income has a higher stimulative effect than additional money. Money to low income households, likewise. I’m not going to spend my stimulus money at all, I’m going to save it, because I can. If you want money to circulate, give it to people who can’t afford to save it.
So yeah, I’m comfortable thinking of this as a bonus stimulus. Especially if it means BK lays off Suzie and gives Johnny her hours, rather than both of them having their hours cut in half.
Deriding a policy because a few people may “overbenefit” is the flip side of the all-too-common insistence by some people that if a new policy hurts even one person it shouldn’t be implemented.
Policies for the tens or hundreds of millions should be evaluated by the overall good or harm they do. People who try to make their case by pointing to the very few outliers should be shouted down, ostracized, and never be allowed to take part in public discussion again.
Money that replaces lost income has a higher stimulative effect than additional money. Money to low income households, likewise. I’m not going to spend my stimulus money at all, I’m going to save it, because I can. If you want money to circulate, give it to people who can’t afford to save it.
So yeah, I’m comfortable thinking of this as a bonus stimulus. Especially if it means BK lays off Suzie and gives Johnny her hours, rather than both of them having their hours cut in half.