It’s reassuring to know that some aspects of modern life still haven’t changed. For example, Keynesian economists remain totalitarian lying sacks of shit.
Yes, most workers can collect more in coronavirus unemployment than they earn – but that doesn’t mean Congress should cut the $600 supplement
By, David Salkever, Professor Emeritus of Public Policy, University of Maryland, 4 August 2020
Americans who lost their jobs because of the pandemic had been getting a US$600 bump on top of state benefits in their weekly unemployment checks since March. That ended on July 31, and lawmakers are debating whether to extend the program and if so by how much.
The first question should have been “do we have the money to extend this program?” But Keynesian economists assume prima facie that the society uses fiat currency.
Senate Republicans are arguing it’s too generous to the 18 million who are unemployed and serves as a disincentive to returning to work. Their initial proposal in the ongoing negotiations would slash the benefit to $200 a week.
As an empirical economist, I wanted to see if their concerns about the disincentive were valid. So I analyzed data on earnings and unemployment benefits to estimate the share of benefit-eligible workers who could collect more on the dole than on the job.
I’m not familiar with the “empirical” school of economics. Here’s a book I found:
Empirical Economics publishes high quality papers using econometric or statistical methods to fill the gap between economic theory and observed data. Papers explore such topics as estimation of established relationships between economic variables, testing of hypotheses derived from economic theory, treatment effect estimation, policy evaluation, simulation, forecasting, as well as econometric methods and measurement.
“Use statistics to fill the gap between theory and observed reality”. Like I said, LYING SACKS OF SHIT. An honest man would change the theory to better describe reality.
I started my analysis by looking at 2019 Current Population Survey data to estimate weekly earnings of private-sector employees, both nationally and state by state. I then adjusted the numbers for wage inflation and compared the results with jobless benefits and “replacement wages,” which vary from state to state.
Iowa is the most generous and replaces 49% of a worker’s weekly wages with a cash benefit when he or she loses a job involuntarily, while Alaska is the stingiest and replaces only 28% of income. I estimated that on average the replacement rate for all workers in the U.S. was about a third.
Once the $600 federal supplement is added in, the national average wage replacement rate soars to 127%. On an individual basis, I found that 56% of eligible workers would receive more in benefits than they would earn gainfully employed. Among those workers, the average excess benefit was $253.
“We’ll pay you $253 extra per week to stay home, sleep in and avoid getting sick.”
“No thanks. Life is more fun when it sucks.”
This figure also varies in each state, depending on replacement rates as well as average weekly earnings. For example, benefits exceed their earnings for little more than a third of workers in Washington, D.C., while that figure is 75% in New Mexico.
He posts a chart of U.S. states ranking the number of workers eligible for overpayment from 30% to 80%. His own figures indicate that people are being paid to stay home. We didn’t need him to prove what we already know.
If Congress passes a lower federal supplement of $200, the result would drastically change the picture. As a result, I estimate only 9.5% of workers across the country would receive more in benefits than what they could earn – on average about $61 – and the replacement rate would drop by half to about 65%.
The Republican plan would eventually have the $200 supplement replaced with a system that provides workers with a combined state and federal benefit equal to a replacement rate of 70%. The federal share would be capped at $500.
And they go back to work, because the reason people work is to make money. We have recapped observable economic reality. Onward to the Keynesian reality!
Why $600 is still important
While Republicans are right that the $600 jobless benefit may seem high, that alone does not mean it should be cut.
The unemployment insurance program started in 1935 soon after the Great Depression ended with two major objectives: to provide temporary partial wage replacement to unemployed workers and to help stimulate the economy during recessions.
Boom, there it is. Classic Keynesian thinking. When the economy goes into recession, the government increases spending. When the economy recovers, the government increases taxation.
Every elected politician just heard 1. tax-and-spend is virtuous behavior and 2. move over Jesus, I’m the REAL savior of humanity!
The second objective is important. With the U.S. economy sinking into recession, a more generous supplement acts as a powerful stimulus. Consumer spending makes up more than 70% of the economy, and most of those who receive the benefit will spend it quickly. This powerful and ongoing jolt would help revive the economy – or at least keep it alive – as well as offset worries that economic inequality will soar as a result of the pandemic.
Spend it on what? Going to Disneyland? All events are canceled. Movements restricted. Either you order Chinacrap you don’t need from Amazon or you bank it in preparation for the coming massive economic collapse into Keynes’ “in the long run, we are all dead anyway.”
I wonder if God would let me watch when He raises Keynes from the dead to face Judgment Day? I bet the expression on Alan’s face, when he realizes that in the long run we ARE NOT dead, will be priceless.
In addition, unemployment insurance only replaces wages. A job often comes with other benefits, such as health insurance and retirement plans. Even full-time service workers in the private sector, who as a group earn less than $15 per hour in wages, receive an average of $1.99 per hour in employer-paid insurance, mostly for health care.
Overall, non-cash job benefits amount on average to 19% of total employee pay. Factoring in that non-cash dollar value reduces the average replacement rate to 108% and lowers the share of employees receiving excess benefits from 56% to 43%.
Look, Dave, anybody who pretends to understand the welfare state in this level of detail is self-delusional. That goes double for you experts who work on it.
Finally, employment insurance works in a way that limits its ability to act as a disincentive to work. People who quit their jobs voluntarily are ineligible for benefits. And someone without a job who receives a suitable offer of employment is no longer eligible to continue receiving benefits.
One, that’s not a factor in this Wuhan Big Whoop situation. Two, many people will lie when they’re paid to.
That’s one explanation cited in a recent study by Yale economists that found no evidence that the $600 federal supplement reduced employment.
QED: many people will lie when they’re paid to.
Altogether, I find Republican concerns that the $600 supplement dissuades work unpersuasive in the context of the current pandemic. A generous policy that helps support the economy and aids those at risk of losing their homes or struggling to feed their families seems more sensible than one that assumes someone collecting unemployment benefits could just as easily be working.
Maybe if the government hadn’t banned work, fun and oxygen in the first place, people wouldn’t be at risk of losing their homes or feeding their families? To say nothing of all the new laws being passed to destroy private property, excuse me, landlords’ rights to evict nonpaying tenants. But that observation would expose the fatal flaw in Keynesian economics: the State is not your Savior.