Federally enhanced unemployment benefits led to a 10 percent increase in consumption among those out of work when they were first rolled out, according to an analysis by the JPMorgan Chase Institute, estimates that have alarmed business groups.
A disruption could result in a drop in spending as high as 20 percent, the research found.
“Small businesses desperately need the consumer demand” Small Business for America’s Future, a coalition of small business owners, said in a statement. “We need legislation that puts money in the hands of people who will spend it at local small businesses. The future of our Main Street economies depend on it.”
Rachel Greszler, a senior policy analyst at the conservative Heritage Foundation, agreed that the change in benefits will have short-term negative impacts on the economy. But she warned the increased spending will have the longer-term consequence of running up the national debt.
“If you continue excessively high payments, then you end up just trading a global health pandemic for a fiscal crisis,” she said.
The impact on Black and Hispanic workers
Because Black and Hispanic workers are disproportionately reliant on unemployment aid, slashing the benefits could do permanent damage to the economic well-being of those demographics, already among those the pandemic has hit hardest. Forty-seven percent of recipients of state unemployment benefits in July are projected to be nonwhite, according to the Congressional Budget Office.
“These universal approaches to addressing economic issues ignore the recent and past history of structural racism, and how wealthy is distributed in the country,” said Andre Perry, a research fellow at Brookings Institution.
“We need to think about the long-term protection of the most vulnerable,” Perry said. “And unemployment insurance provides that safety net for now.”
Is a $600 payment causing workers to stay home?
The Congressional Budget Office estimated in June that extending the boost by six months would likely lead to greater economic output in the second half of 2020. But the non-partisan scoring office also forecast that the work disincentive would lead to lower levels of employment for the remainder of the year and into 2021 — an estimate Republicans have seized on during discussions over the benefits.
Yale University researchers recently found “no evidence” that the boosted unemployment benefits increased layoffs at the outset of the pandemic or discouraged workers from returning to their jobs over time, according to a report based on data from the business scheduling software company Homebase.
“If there is still really depressed labor demand, asking people to go out and search more intensely will not necessarily yield higher employment,” said Dana Scott, the primary author of the report. “And on the flip side of the coin, reducing people’s income will also decrease those stimulus effects…where they’ll have income replaced, go out and spend more money, which isn’t just for the economy.”
But those close to the White House disagree. “I get ten calls a day from employers telling me the workers will not come back on the job,” Moore told POLITICO. He pointed to the 5.4 million new job openings reported by the Bureau of Labor Statistics in May. “That’s a lot of jobs,” Moore said, “but look that’s not 20 million.”
The most recent jobs report from BLS indicated that the number of workers who permanently lost their job increased to 2.9 million in June. Some 9.1 million workers would have preferred working full-time, but were only able to get part time jobs in June. And 8.2 million individuals said they would like a job, but were unavailable or not actively seeking out work in June, according to BLS.
What about just sending stimulus checks?
Republicans’ proposal would suggest another round of stimulus checks, similar to those enacted via a previous round of aid, in an effort to bolster consumption.
“The way the previous bill was crafted, five out of six workers are actually making more staying at home than going back to work,” McConnell said on CNBC’s “Closing Bell” Tuesday. “And remember, all of these folks are going to get another $1200 in direct payment.”
But the cash is a less efficient way to rejuvenate the economy because it is not as narrowly tailored, economists warn.
“Spending less on unemployment insurance and also doing the stimulus check … is terrible economic policy,” Shierholz said. “You’re taking something that’s very, very well targeted — getting money to people who’ve lost their jobs — and giving it broadly.”