Plans for Extended Unemployment Benefits, Wage Subsidies Risk Creating a Zombie Economy

“the states that have reopened have seen anemic economic recoveries at best.

Slate’s Jordan Weissman, using data from the app Open Table, notes that restaurant reservations are down as much as 92 percent from last year in those states that have allowed dining rooms to reopen.

A ranking of state jobless claims released yesterday by the personal finance website Wallethub finds that the number of people applying for unemployment is especially high in Connecticut, which had a bad COVID-19 outbreaks and a strict shutdown order, but also in Georgia and South Dakota. The former is lifting its shutdown order, and the latter never imposed one.

This matches with new research showing that economic activity declined at similar rates regardless of when states issued formal lockdown orders. Individuals, not the government, shut the economy down. They’ll also decide when, or if, it reopens.”

“if we can’t expect much of the pre-pandemic economic activity to return, that dramatically weakens the case for propping up businesses as Jayapal and Hawley want to do, or paying workers to stay jobless like the HEROES Act does. Both policies stymie markets’ ability to adjust to COVID-19 while shifting resources from those parts of the economy that can be productive during a pandemic to those that can’t. If there’s no demand for air travel, we’d be better off seeing baggage handlers shift to being warehouse workers or grocery delivery drivers. We want cooks and cashiers to move to restaurants that can figure out a way to stay profitable without dining service.

That doesn’t mean the government can’t provide relief. Even if we allow those readjustments to happen, we’ll still probably have a less productive economy for a while, and the negative effects of that will be concentrated on people who aren’t in a position to adapt. So there’s a reasonable case for cash transfers targeting the poorest Americans. But they shouldn’t be conditioned on staying at their current jobs, and—unlike unemployment benefits—they shouldn’t be conditioned on staying out of the labor force altogether.”

The American unemployment system is broken by design

“The coronavirus crisis..has revealed many uncomfortable truths about America, including the country’s unemployment system: It is broken, and in many cases, it is broken by design. After years of disinvestment and underfunding, benefits systems across the country have been left starved and in disrepair. In many states, benefits are intentionally difficult to collect and application processes complex to navigate.”

” The program is funded through unemployment insurance taxes that employers pay to the state and federal government, and the amount collected by states varies, as do the benefits they provide, the way they set up their systems, and the way they deal with applicants. ”

“so, what the country has wound up with is a patchwork of unemployment systems.”

” Unemployment insurance is supposed to act as a stabilizer in an economic downturn, but ungenerous benefits mean that’s not the case. “In some of these states, the benefits are so hollowed out that it couldn’t be countercyclical,” said Rebecca Dixon, executive director of the National Employment Law Program, meaning benefits are unable to help boost the economy when it’s needed most.”

“The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, the $2.2 trillion stimulus package signed into law in March, makes some temporary adjustments to unemployment insurance. It adds on $600 a week in federal benefits through the end of July, extends eligibility by 14 weeks, and expands the pool of workers who can apply to include freelancers, gig workers, and those who are self-employed. Still, poor infrastructure and funding in different states make accessing those benefits hard.”

““Many states have refused to raise taxes to fund unemployment insurance. They’re always betting that the feds will bail them out if things get really bad, and no one expected it to get this bad, just a crush,” said Holzer.”

“in many parts of the country is unemployment systems have gradually been whittled down. Part of the problem is that many people on the left have been more focused on getting aid to workers, and many people on the right have focused on cutting funding altogether, so infrastructure has been neglected. People pay attention when there’s a crisis, and then it’s too late to act.”

“multiple states are still using COBOL, a coding language dating back to the 1950s, in their systems. In April, New Jersey put out a call for COBOL programmers to help reinforce its program. The problem with the language isn’t necessarily that it’s a bad one, it’s that there aren’t a lot of people who know how to use it anymore. That means there aren’t enough people to fix bugs in the system or update it to take on an influx of applications.”

“States employ a number of tactics to keep people from collecting and to discourage them from accessing the system. They put a hard-nosed administrative face to clients by way of work search verification, fraud prevention, identity verification, and adding in bureaucratic layers that are difficult to maneuver around. And by cutting back benefits, they also make it so workers feel like it’s less worth the hassle to apply. (Part of the problem now is that the $600 in weekly federal money is pretty motivating.)”

“unemployment insurance is not designed for the modern-day workforce and leaves people out. When the program was created in the 1930s and intervening years, it was designed for a largely white male workforce who were breadwinners and who were laid off for short periods of time and called back, Dixon explained, like a factory that would temporarily put workers on leave during a slow period. Employers wanted unemployment because they wanted their workers to be available to come back. But today, more layoffs are permanent, and there’s no relationship with employees.”

“If the US were to start over, it may very well try to deal with unemployment insurance at a federal level, Vroman said: “Internationally, almost every country that has unemployment insurance has a national system.””