The Atlanta Federal Reserve recently projected that second-quarter GDP fell by 1.9 percent. If its model proves correct, the U.S. economy has fallen into a recession with GDP shrinking for two consecutive quarters. Whether we are technically in a recession is far less important than the reality of the recession Americans have been experiencing for months. At this point, with ongoing historic inflation, Americans are also likely enduring stagflation.
The Biden administration’s bad economic policies bear much of the responsibility. So, the administration and congressional Democrats are trying to distract from the contracting economy and runaway prices by pointing to the supposedly strong labor market. They argue that the country is not in a recession as long as the unemployment rate stays low. As with so much, we’ve heard from this administration, it’s just not true.
On Friday, the Labor Department announced that the economy created 372,000 jobs in June and the unemployment rate held at 3.6 percent. President Biden has continually bragged about the supposed historic job creation under his watch taking credit for people returning to work following the pandemic.
Yet the labor market isn’t as rosy as the topline unemployment rate suggests. There are still over 500,000 fewer people working today than before the pandemic despite the V-shaped recovery Biden inherited from President Trump.
Yet, employers are desperate to hire. There are 11.3 million unfilled jobs nationwide. That’s nearly 2 jobs for every unemployed person. This obviously raises the question: why are fewer people working than was the case pre-pandemic?
Well, the answer is equally obvious. Not enough Americans are willing to work. The labor force participation rate remains well below its pre-pandemic standard. In fact, were labor participation today the same as when the pandemic began, the unemployment rate would be 5.5 percent. It’s only 3.6 percent because fewer people are working or actively looking for work.
Generous social welfare programs, expanded during the Covid-19 pandemic, help explain this labor market paradox.
During most of 2021, supplemental federal unemployment benefits and boosted child tax credits, distributed monthly, paid most entry-level workers more to stay home than return to work. A June 2021 study by economists at the Committee to Unleash prosperity found that a family of four with two parents out of work earned around $72,000 in unemployment benefits, more than the national median household income.
These programs have ended thanks to brave, primarily Republican, policymakers who recognized their unintended economic consequences. While these programs were necessary during the pandemic when state governments told people they could not work, their corrosive impact on the American work ethic remains. It’s hard to deny the reality that some Americans have clearly gotten used to not working and have chosen to live off the welfare that remains rather than return to the workforce.
This is not a criticism of people genuinely in need of government assistance. We are a rich nation. We should, and we do, help those in need. But the able-bodied should work both for society’s benefit and for their personal benefit, their dignity, and sense of self-worth. President Clinton and Newt Gingrich affirmed this notion when they imposed work requirements for welfare recipients to great effect in the late 1990s. It’s a simple notion – those who can work should.
Pandemic-era welfare enhancements still in place have aided the current disinclination to work ethic. For instance, Congress expanded food stamps and removed work requirements to receive them. The United States Department of Agriculture gave states “emergency allotments” of food stamps that have continued long after the pandemic emergency ended.
In October, the Biden administration implemented the largest permanent increase in food stamps in the program’s history. The average food stamp benefit is now nearly double what it was in 2019. Unsurprisingly, the number of households on food stamps has not meaningfully declined since the pandemic ended.
The public health emergency also allowed states to increase Medicaid enrollment by 20 percent and forbade them from removing residents from the program even though many likely no longer qualify. They cannot do so until the Biden administration declares an end to the public health emergency.
These welfare expansions are in addition to the smorgasbord of public benefits out-of-work Americans already receive, including unemployment insurance, housing vouchers, energy subsidies, childcare subsidies, and direct cash assistance. In addition, states offer their own social programs. Together, they amount to a government-dependency trap, disincentivizing work.
Employers across the country tell me that their employees routinely make the rational decision to drop out of the workforce entirely – or at least take a break from it – cushioned by this generous aid.
Again, we should help people who cannot help themselves as these programs do when properly distributed. But incentives matter and those who can work should.
Congress must immediately roll back this expanded welfare, reinstate associated work requirements, and reform longstanding programs to help the labor market reach and exceed its pre-pandemic peak – which would help reduce inflation as employers staff their businesses and replenish the supply chain allowing the economy to recover to everyone’s benefit.
However, public policy solutions may be insufficient if we delay taking action. Employers also tell me of a degraded work ethic among a large group of younger Americans today that transcends financial considerations. These workers are quick to quit at the first challenge they encounter. They are unwilling to put in the effort to learn and improve. And they regularly turn down shifts and even opportunities for overtime pay. If you think I’m being unnecessarily critical, go talk to a local employer.
Fully reestablishing the American work ethic is a long-term project. Unfortunately, the economic problems the country is facing are here and now. If our elected leaders are unwilling to acknowledge the problem, let alone address it, expect the recession to be deeper and longer as a result. If we do not restore the American work ethic, expect much worse.
Andy Puzder was chief executive officer of CKE Restaurants for more than 16 years, following a career as an attorney. He is currently a Senior Fellow at the Pepperdine University School of Public Policy.