unemployment benefits, unemployment system, minimum wage

Playing Tetris with Unemployment and Benefits Systems Isn’t the Real Answer

Ideas and Issues

April 29, 2021


Jobless claims are reportedly finally going down after a full-year of the pandemic, and employers are crying that they have vacancies that they are unable to fill.

The left notes that the wages and benefits on offer are too low, and that’s certainly true without a federal minimum wage increase in the last dozen years. President Biden issued an executive order raising to $15 per hour the base wages of all workers employed under federal subcontracts in recognition of this fact. Business knows this is not an ideological point either as evidenced by the fact that Amazon, the nation’s second largest employer after Walmart, had already raised their minimum wage to $15 and now, in the wake of the Bessemer, Alabama, union drive, has announced additional raises of between fifty-cents per hour and $3 per hour for 500,000 workers, more than half of its US-based workforce.           Who says organizing a union doesn’t pay?

The right blames the problem on unemployment benefits being too rich and therefore disincentivizing unemployed workers from accepting work at any wage. The Trump stimulus a year ago supplemented unemployment for many months with an additional $600 in weekly benefits creating a bountiful experience for many displaced workers where an estimated 76% of those receiving benefits were making more than had been receiving while employed. Those premiums ended, but the pandemic did not, so the Biden stimulus tacked on $300 per week until September 6th, and trust me that is also more than many minimum wage workers, especially in the South, were making while employed in the service and related economy.

In a fascinating Upshot column in the Times, there was a discussion of several proposals, including a new one from a scholar at the University of Massachusetts, that proposed a total revamp of the unemployment system that would be triggered to levels that increased or decreased based on the unemployment rates in the states. They also discussed the widely recognized need for technological and citizen-facing upgrades that were exposed as woefully inadequate in the pandemic emergency. The column notes that the partisan divide as well as the basic survival instincts of politicians make this difficult, because they like to be heroes in an emergency, and, though they don’t say this, they like to come off as Scrooges on the regular, daily basis.

The 600-pound gorilla not being discussed is the fact that the federal “solutions” ignore the state-based nature of all unemployment insurance schemes and the local political options, which tend towards the miserly, even though unemployment is paid for mainly by employer and employee contributions while working. In those situations, state-based politicians never get to be heroes, because it’s largely not their money in the game. The primary reason that so many are now making more unemployed lies in the fact that businesses want to pay less on their unemployment ratings and politicians, particularly in the South, have been steadily freezing or reducing benefits for unemployed workers to less than even the most minimal survival rate. If you give a worker less than $200 per week in benefits, as many states do, in order to make a minimum wage job attractive, then anything above that looks like heaven.

Remember a minimum wage worker makes hardly $15,000 per year and at less than $200 per week in unemployment would make above $10,000 per year, if the benefits lasted that long. Change that to $800 per week and they are making a rate over $40,000 per year. Change that to $600 per week, and they are making over $30,000 per year. And, I’m not counting the per child payments that are about to begin under the already-approved Biden stimulus, increasing even more significantly lower income family cashflow.

Politicians and bureaucrats can upgrade all of the computer systems they want, and they can even jigger the levels up and down with inflation and unemployment rates, but as long as many states pay such abysmal benefits, it won’t create a line at the door for minimal wages. This is math that a worker is more than able to do, regardless of the quality of public-school education or whatever their degree. If she can make up to twice as much not working, what’s the rush? Anyone who really wants to change this situation has to be willing to level the benefits around the country for workers so that there is real insurance when a worker loses their job and real wages paid when the jobs call them back to work or the economy opens up to more hiring.