JOHN HOOD COLUMN: Enforce rules to ease labor shortage

Published 9:48 am Thursday, May 20, 2021

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President Joe Biden wants you to believe that there is no relationship between the extra $300 a week many are receiving in enhanced unemployment-insurance benefits and the shortage of workers now manifest in stores, restaurants, hotels, and other businesses here in North Carolina and across the country.

John Hood

But doesn’t paying lower-skilled workers more to stay on the sidelines than they could earn on the job make it more likely they’ll remain unemployed? “We don’t see much evidence for that,” the president said May 10 at the White House.

Biden’s claim isn’t quite as ridiculous as it may sound. During the early months of the Great Suppression last year, when Congress jacked up UI benefits by $600 a week, there seems to have been a surprisingly small effect on the jobless rate — even though some two-thirds of recipients were receiving more in UI payments than they’d likely have made by working.

How do we know that? Several scholars have since examined the data closely, exploiting differences in timing and benefit levels across states to test the effects of enhanced benefits on the willingness to work. All other things being equal, you’d expect to find such an effect. But all other things weren’t equal during 2020. So the effect was, at most, modest.

Think about what was happening last year. Lots of businesses were still shut down, or their hours and services were severely curtailed by government edict. Many Americans were afraid to stay in enclosed spaces for long, as consumers or workers. And because most schools were substantially closed to in-person instruction, many parents who might otherwise have taken jobs were forced to care for and supervise the virtual schooling of their children.

Given those adverse conditions, many workers would have stayed home, or failed to find jobs, even if their UI check had been smaller.

Democrats and progressives contend that what was true in 2020 is largely true today. That’s why they reject arguments by Republican lawmakers and governors, conservative economists, the U.S. Chamber of Commerce, and business owners across the country that the $300-a-week supplement needs to end now, not in September.

I’ve talked to managers who say they simply can’t get former or prospective employees to come in, at least at wages consistent with keeping their businesses afloat. My wife recently informed me that a restaurant we’ve frequented for years during beach vacations will be closed for the season because they can’t find enough kitchen and wait staff.

Anecdotes aren’t data, say left-wing activists. They dismiss the idea that the extra UI checks are creating an artificial labor shortage, even though many more businesses are now open and trying to hire, many more Americans are willing to venture out to work or shop, and more schools and day-care centers are open to mind the kids.

President Biden said what he said — but his actions say something else. While refusing to budge Monday on the benefit amount, he pledged to work with state governors to reimpose job-search requirements and enforce the fundamental rule of the program as described by the White House: “Anyone receiving UI who is offered a suitable job must take it or lose their UI benefits.”

As unprecedented and disruptive as the COVID pandemic has been, it didn’t repeal the laws of economics or the realities of human nature. As the labor market has begun to reset towards normal, the disincentive effects of enhanced UI benefits are coming into focus. It’s one reason why the April employment report showed hundreds of thousands fewer Americans getting jobs than expected, and why the March estimates were revised downwards.

North Carolina is among the states already taking steps to tighten the rules and shut off payments to workers who refuse to accept job offers. It’s good news that the Biden administration won’t stand in the way. Our labor-force participation rate is still much lower today than it was in February 2020. It’s time to get folks back to work.

John Hood is a Carolina Journal columnist and author.