As the United States comes out of the COVID-19 pandemic, some of the policies put in place at its height are no longer useful for economic recovery. Among these policies is the additional $300 being paid to unemployed workers that began at the height of the pandemic. At least 16 states have begun the process of ending this additional unemployment benefit, with the argument that it discincentivizes people from seeking out work. In Wisconsin, some Republican lawmakers are urging Governor Tony Evers to do the same, but he is likely to be resistant.
What does the data show about changing this policy here? Below are two key points.
Slack in the Labor Market
This issue is important because some slack remains in Wisconsin’s unemployment rate. The figure below shows the unemployment rate by month in the state over the past year and a half using data from the Bureau of Labor Statistics (BLS).
The chart shows how starkly government policies on COVID-19 shot up unemployment: between February and March, Wisconsin went from 3.3% unemployment to 14.8%. The good news is that rates have come down substantially from their highs in the early part of the pandemic. But rates remain about 0.5% higher than they were before the pandemic.
That more generous unemployment benefits can harm employment is well supported in the economic literature. A 2014 paper looked at the end of extended unemployment benefits in the aftermath of the Great Recession, and found that employment increased significantly. Our own research in Wisconsin showed that reforms to the welfare system that reduce benefits for a failure to engage in job searches brought down unemployment in the Walker era. This makes sense. When a person can collect the same or more income by not working, they are less incentivized to look.
Lack of Incentive to Work
While it is hard to know exactly how many potential workers have been disincentivized from returning to the work force by generous unemployment benefits, we can get an estimate by looking at how many workers in the state are employed at salaries under the total amount that can be collected on unemployment.
The chart below lists the ten largest occupations for which remaining on unemployment could be a net positive according to BLS data on Wisconsin annual wages by occupation. The operating assumption of this model is that regular unemployment wages would return to the 40% of regular wages for 26 weeks that it was prior the pandemic.
Column 1 lists the profession. Column 2 lists the number of people employed in the profession, followed by approximately how much they make over 26 weeks. “UI Wage” represents what they would make under normal unemployment, and “UI +” represents what they would make over that time frame with the additional $300 per week. The final column lists the net change in their expected wages over that time frame.
By far the largest group are those that work in the restaurant industry, representing nearly 200,000 workers in the state. Overall, about 11% of all workers in the state work in jobs where unemployment increases may disincentivize work. Removing the extra $300 would put the average unemployment benefits well below the mean wages for all of these occupations.
As tourism season ramps up across the state, the need for workers is only going to increase over the next several months. The pandemic has largely passed, and the policies that went along with it now only serve as a drag on economic recovery. Removing these additional unemployment benefits will help businesses overcome the tremendous losses of the last year and insure that Wisconsin’s economy continues to grow.
Will Flanders is the research director for the Wisconsin Institute for Law & Liberty.