Study Shows Expanding Unemployment Keeps Americans Out Of Work

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Posted by Tom Hebert on Tuesday, November 24th, 2020, 2:55 PM PERMALINK

Democrats are fighting to expand several unemployment programs into 2021, including reviving the Pelosi $600-per-week increase in unemployment payments that subsidized welfare over work. 

This could endanger the economic recovery, as past expansions of unemployment programs have resulted in more Americans out of work and decreased labor demand, according to a 2019 study from the New York Federal Reserve.

On the heels of the Great Recession, Congress extended unemployment benefits for 13 weeks on top of the normal 26 week duration in June 2008. After President Obama took office, Congress passed a number of additional expansions to unemployment, eventually topping out at 99 weeks of benefits. 

Analysts from the New York Federal Reserve estimated that the unemployment rate would have been 2.2 percentage points lower in 2011 and 3 percentage points lower in 2010 if Obama’s benefit expansion did not exist. This means that the disincentive to work the benefit expansion created kept approximately 4 million Americans out of a job during the slowest economic recovery in modern history.

The report also found that extended durations of unemployment payments have a negative impact on labor demand, as “...firms would expect to bargain with workers entitled to high benefits at all future dates.” 

Democrats are pushing to revive the CARES Act’s temporary $600-per-week federal pandemic unemployment compensation (FPUC) benefit. Before the FPUC expired in July, it created a situation in which 68 percent of Americans got paid more on unemployment than in the workplace. 

The subsidy of welfare over work will have lasting impacts on the economy that will only worsen if brought back. A recent study conducted by the Heritage Foundation found that the FPUC will reduce GDP by between $955 billion and $1.49 trillion. 

The economy is recovering strongly from the pandemic, and several promising COVID-19 vaccine candidates are on the horizon. Since the April pandemic-low, 12.1 million jobs have been recovered as businesses continue to reopen and Americans continue getting back to work. Since October, over half of the jobs lost to the Coronavirus pandemic have now been recovered, and unemployment has fallen from a record high 14.7 percent to 6.9 percent. 

While workers who have been displaced by the pandemic through no fault of their own deserve a safety net, history tells us that extending these programs will do more harm than good. As our economy continues to rebound, lawmakers must keep these facts in mind and reject policies that would prolong high unemployment rates and discourage Americans from safely re-entering the workforce.

Photo Credit: Gage Skidmore

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