Washington will finally cut the flow of unemployment dollars that are proving to keep workers on the sideline of the economy.
Key leaders in the administration confirmed that the federal $300 unemployment benefits bonus will expire in a few weeks and won’t be extended.
For the good of workers and household budgets struggling with rising inflation, let’s hope they don’t change their minds.
Yesterday, Treasury Secretary Janet Yellen and Labor Secretary Marty Walsh sent congressional leaders a letter confirming that the Biden administration doesn’t plan to extend the unemployment insurance bonus and other expanded benefits programs beyond their September 6th expiration date.
In the letter they noted:
The temporary $300 boost in benefits will expire on September 6th, as planned. As President Biden has said, the boost was always intended to be temporary and it is appropriate for that benefit boost to expire.
In addition, President Biden believes that the conditions exist in many states such that the other emergency UI [unemployment insurance] programs … can end on the date set in the American Rescue Plan.
This is an important signal that the administration actually believes in the economic recovery.
It may also be an implicit admission that the generous benefits are having a negative impact on unemployment. Americans rejected nearly two million job offers because of the benefits. It’s time to end this disincentive to work.
What happens next?
Expect a hiring boom. About 7.5 million people are expected to lose their benefits when these temporary pandemic programs end next month. The $1.9 trillion COVID-relief package passed in March extended the extra $300 unemployment bonus on top of baseline benefits and programs that gave benefits to gig workers and other unemployed workers who don’t traditionally qualify.
All of these workers will likely start looking for work again and they will enter a pretty good jobs market. There are over 10 million unfilled positions. In addition, because employers have raised wages many are offering perks such as application and signing bonuses, workers can re-enter the workforce at higher wages than when they left it.
Over time, as the number of applicants for jobs rises, we can expect that companies will pull back on the perks, but they likely can’t cut back on wages. Overall, workers will find themselves in a good position.
Businesses, which have struggled to find workers to fill their open positions, can ramp back up to operate at full capacity. This will lead to more production of goods and better service at dining establishments.
For consumers, that could lead to some easing of prices and inflation. That should be a relief for many American families who have felt the pressure on their budgets from inflation.
It’s not a done deal yet
Nothing is absolutely certain. Anything can happen over the next few weeks to change the administration’s course.
Although it’s unlikely that Congress could find enough bipartisan—even partisan—support to extend the benefits, the White House could choose to unilaterally extend those benefits as President Biden did with the eviction moratorium.
Just a couple weeks ago, White House press secretary Jen Psaki left the door to an extension open beyond September 6, saying:
At this point, they’re expiring at the beginning of September. Nothing has changed on that front, but a final decision has not been made.
Let’s hope this letter from Secretaries Yellen and Walsh are the final word on this policy issue, but President Biden has plenty of time to change his mind. If so, he will own the continued drag on the economy of these generous benefits.