Are Unemployment Benefits the Best Way to Help Workers During Times of Economic Crisis?

Published in Business and Economy .


(Image credit, Unsplash)

The current COVID-19 crisis has thrown a major wrench into people’s daily work lives. Thanks to a number of stay-at-home orders and lockdown measures passed at the local and state level, many Americans have been put out of work indefinitely or in extreme cases, permanently.
In response to the pandemic, the federal government has taken it upon itself to issue stimulus checks to Americans of certain income brackets, provide emergency loans through the Payment Protection Program, and allow for extended unemployment insurance.
A case can be made for Americans to receive some form of compensation during a time of the pandemic, especially when governments are taking such heavy-handed measures that disrupt their daily lives. When governments take collective actions, ostensibly for the “public good”, there should be some degree of accountability and recompense handed out to people whose economic affairs were disrupted as a result of that public policy.
One specific case where there needs to be a modicum of restraint is regarding unemployment benefits. According to the Labor Department, 40 million Americans are officially out of work, and as many have filed unemployment claims. Although unemployment insurance functions as a small safety net for those down on hard times, it is accompanied by its own set of problems. During large-scale crises such as the one, we are currently confronting we see how such programs can be expanded to unwieldy levels. For example, in March, $3.89 billion was paid out in unemployment benefits. But this figure skyrocketed to $22.76 billion by May.
With any legislative action, there’s always a need to exercise prudence. Proactive legislative measures regarding economic activity tend to generate unintended consequences and create a whole host of new problems. This engenders another cycle of economic intervention that predictably leads to more unintended consequences. Unless policymakers strike at the root, the cycle continues in perpetuity.
Such unintended consequences are visible in the case of Maryland restaurant owner Melony Wagner. A month ago she claimed that she couldn’t get her employees to return to work given that they receive more in unemployment benefits than their regular wage.
“They don’t want to [come back to work] and I don’t really want a restaurant full of unhappy employees,” Wagner told FOX 5 News.
“They don’t want to because it is less money. I am not even angry or upset with them. I understand. Why would you want to come back and actually work and make half as much money or two-thirds as much money – and you are working – as you can get to stay home,” Wagner commented.
Under the CARES Act, Americans who became unemployed due to the COVID-19 related shutdowns can receive an additional $600 weekly on top of what they’re receiving from their state. This federal unemployment program went into effect on April 22nd and will stay in place until July 31st.
According to a Congressional Research Service report on state unemployment insurance released in 2019, the majority of states provide unemployment benefits for up to 26 weeks. The report noted that 1.6 million unemployed people were recipients of $364 in weekly benefits in August 2019. Maximum payouts to the unemployed vary considerably at the state level.
In the case of Massachusetts, a person can potentially receive $1,192 weekly if they list the maximum amount of dependents on their unemployment insurance. On the other hand, Mississippi residents can only claim $235 per week even if they put down the maximum amount of dependents when they file their unemployment claims.
For those living in Maryland, where the restaurant owner is currently operating in, residents can claim a maximum of $430 weekly for a period of six months. Factoring in the additional $600 they can receive in federal benefits, Maryland residents could be eligible for a total of $1,030 in unemployment claims until the end of July.
Congressional Democrats have exploited the economic uncertainty in the current COVID-19 reality by introducing a new relief package that would extend the $600 unemployment benefits until the end of 2020, and for some people, until March 2021.
While programs such as these are well-intentioned, economic realities can no longer be ignored. The national debt is currently north of $26 trillion. Extending unemployment will exacerbate the shortfall. More importantly, unemployment benefits pervert incentives and keep people dependent on such aid. As a result, they will subsequently have no real desire to return to the workforce in a timely manner.
In previous eras when the government was considerably leaner, America could count on a more robust civil society that was ready to step up and help out Americans in need. The rise of the modern-day welfare state, which started with the New Deal, and was consolidated during the Great Society marked radical shifts in public policy, whereby the government usurped functions that traditionally belonged to lower levels of government and civil society. The results have been deleterious, to say the least, with dependency and the destruction of the traditional family structure becoming the norm after the welfare state became firmly ingrained in the American polity. Such social disintegration has led to what political scientist Robert Putnam describes as Bowling Alone (his seminal book), where American civic engagement has deteriorated and overall levels of social trust have completely plummeted during the last 50 years.
Although government-sponsored unemployment insurance only scratches the surface as far as welfare programs are concerned, it does generate dependency and disincentivizes able-bodied individuals from entering the workforce. Since the welfare state is not going away anytime soon, it makes sense for those of us who believe in free markets and government restraint to rebuild civic institutions that used to serve as an alternative to the welfare state. In previous eras such as the Gilded Age up until the 1960s, mutual aid institutions were the go-to options for people who caught rough breaks.
If politicians refuse to roll back the welfare state, free individuals can still build alternatives of their own volition. Thanks to online innovations like crowdfunding and increased interconnectivity, we have more resources at our disposal to help out others. As long as human ingenuity exists, there’s always a way to build non-state solutions to some of the real problems people face. Oftentimes, we don’t need to wait for Congress to pass reforms to make our vision for a free society become a reality.

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