Surprise! Enhanced Unemployment Benefits Significantly Increased Unemployment: Study

One of the greatest insights into human nature came from Ralph Waldo Emerson, who said the more a politician insists something is true, the more his listeners should know it’s a lie. “The louder he talked of his honor, the faster we counted our spoons,” wrote Emerson. The same principle applies to every government policy, as President Joe Biden’s administration has proved with his stern defense of paying Americans a federal bonus to stay unemployed.

The policy, known as enhanced unemployment benefits, did not originate with President Biden. The Coronavirus Aid, Relief, and Economic Security (CARES) Act, which passed Congress in March 2020, gave people who were unemployed due to the COVID-19 pandemic an extra $600 a week over and above what they would have earned from standard unemployment benefits. It also broadened eligibility for unemployment benefits. That policy came to an end in August 2020. The stimulus package signed by President Donald Trump in December 2020, the Consolidated Appropriations Act of 2021, reinstated higher unemployment benefits but reduced them to $300 a week through March.

President Joe Biden’s American Rescue Plan allowed states to extend the extra $300 a week through September 2021, but several governors noted that virus-related unemployment no longer constituted the greatest peril to the economy; instead, employers’ inability to find workers willing to work left stores and restaurants closed from coast to coast. As a result, 25 states voluntarily severed the extra benefits last June. “We definitely saw more job searches when we announced that you had to search again, and then the discontinuing of the 300 [dollar] supplement. And we did see increased jobs in June and July,” said the governor of one of those states, Florida Republican Ron DeSantis (R).

President Joe Biden defended the extra government handouts, insisting that enhanced unemployment benefits made little difference to labor participation — and claiming that those who noticed the policy’s disincentive for work had impugned the sacred honor of the American worker. “I know there’s been a lot of discussion … that people are being paid to stay home rather than go to work. Well, we don’t see much evidence of that,” President Biden insisted last May. The president then cast himself as defending the integrity of the American people. “I think the people who claim Americans won’t work even if they find a good and fair opportunity underestimate the American people,” he said.

Yet a single month later, the president acknowledged the impact the extra federal funds had made on the sagging labor market — with apparent pride. He said his advisors told him, “‘Guess what? Employers can’t find workers,’ I said, ‘Yeah, pay them more.’ This is an employee’s bargaining chip now.”

Biden’s rhetoric combined the typical duplicity of a politician with the malicious boasting of a scoundrel. On the one hand, dear middle-class American, I had no intention of redistributing your tax dollars to the Democratic Party’s base in such a way as would make it more difficult for you to buy household necessities at your local Dollar General. On the other hand, screw you.

Now the numbers have come in, and they prove Republicans right. Three scholars — Harry Holzer, Glenn Hubbard and Michael Strain — now offer strong empirical evidence that Biden’s policy kept people at home instead of in the workforce. In a paper published late last month by the National Bureau of Economic Research, it was discovered that enhanced unemployment benefits significantly increased the number of people who were unwilling to work during the pandemic. “The flow of unemployed workers into employment increased by around two-thirds following early termination” of enhanced benefits by the 25 states in question, they wrote. “Among unemployed workers ages 25 to 54, we find that early termination is associated with a 14 percentage point increase in the unemployment-to-employment flow.”

Specifically, “the unemployment rate among prime working age Americans in the 24 states that maintained the richer benefits through Labor Day would have been 0.7 percentage points lower in August had they ended benefits in June,” summarized the Wall Street Journal in its coverage of the report. “The national unemployment rate would have been 0.3 percentage points lower had all states ended benefits early.” The report’s authors note that their conclusion “runs counter to the conventional wisdom that these programs had a very small or even negligible effect on unemployment and employment.”

The reason for the greater jobless rate should surprise no one: Many recipients made more money from the enhanced benefits than they did from their jobs. The Congressional Budget Office found that in the initial part of the enhancement, eight out of 10 workers made more money collecting unemployment than they would have earned from their jobs. That jibes with an independent study that found 76% of people made more from the extra $600 a week unemployment than they did from their old salary — the median