Throughout the pandemic, many people benefited from the government’s financial assistance in the form of stimulus packages and increased unemployment benefits. But now that the U.S. is opening up again, what are current public policies doing to revitalize the economy, get people back to work, and lift people out of poverty? Let’s play “Two Truths and a Lie” to learn more. Which of the following is NOT true?
A. Minimum wage hikes for entry-level jobs hurt the poor.
B. Greater unemployment benefits increase the unemployment rate.
C. Workers are rejecting jobs due to COVID-19 school and daycare closures.
Let’s take these statements one at a time:
A. TRUTH! Minimum wage hikes yield job losses and disincentivize hiring, especially among the poorest, least-educated and lowest-skilled people—who need jobs the most. Despite this, President Biden has pushed to raise the minimum wage, passing an executive order mandating $15 minimum wage for federal contractors.
The cost of higher minimum wages are passed on to consumers through higher prices of goods, which hits poorer households hardest.
B. TRUTH! In February, President Biden issued an executive order removing work requirements (including searching for employment) to receive Medicaid. He also signed legislation, the American Rescue Plan of 2021, that continues to enhance federal jobless benefits by providing an extra $300 weekly on top of baseline unemployment payments.
These ongoing benefits and stimulus payments are beginning to work against the goal of returning workers to the labor force. Despite the economy adding jobs, the unemployment rate ticked up 0.1 percentage point in April 2021 to 6.1 percent. Though it decreased in May 2021 to 5.8 percent, the Bureau of Labor statistics reported a record high of 8.1 million on the last business day of March (most recent data available). Nearly half of small-business owners reported unfilled job openings in May, according to the National Federation of Independent Business, a record high and 26 points higher than the decades-long average of 22 percent.
C. LIE! Parents of young children are not the ones causing the spike in unemployment rates, easy unemployment money is, and most Americans agree. According to May 2021 polling by Harvard University with HarrisX, an overwhelming 76 percent of Americans said people are “staying on unemployment because they can make more money.” Only 24 percent of Americans say “that is not the case.”
Policymakers should not use COVID-19 emergency tools to create permanent employment disincentives that distort employment markets, are magnets for fraud and risk triggering inflation. Yet Biden supports ongoing, COVID-related enhanced federal jobless benefits, an extra $300 weekly on top of baseline unemployment payments. As the pandemic subsides, this leaves many businesses, particularly restaurants and hotels, struggling to fill openings.
Rather than punish work or reward unemployment, policymakers should embrace tools that encourage work to increase economic mobility for more Americans without triggering unintended consequences that may stall our overall economic rebound.