If you pay people not to work, fewer will work. Except at Yale, it seems.

See Economists vs. Common Sense. WSJ editorial.

"Most Americans understand intuitively that if people make more money by not working, fewer people will work. Then there are politicians and economists who want to pass out more money while claiming that disincentives to work are irrelevant.

The latest attempt to defy common sense is a study by Yale economists that purportedly finds the $600 federal enhancement to jobless benefits hasn’t affected the incentive to work. But the study offers limited evidence for this conclusion, which is contradicted by other data and real-world evidence.

The Yale study analyzes how higher unemployment wage replacement rates affected employment at small businesses after the Cares Act passed in late March. Wage replacement rates vary by a worker’s state and prior earnings. Lower-income and part-time workers have the highest replacement rates. A California worker who previously made $300 per week would receive $150 in normal state benefits plus $600 for a total of $750. The same worker in Oregon would get $795.

The Yale economists found that higher wage replacement rates didn’t reduce rehiring at small businesses in their sample. Yet the study excluded part-time workers and those who hadn’t been working at a business in their sample last year. In other words, the study focused on workers with more loyalty to their employers. 

But short-termers and part-timers make up the vast majority of workers in food and drinking beverages—which was half of their business sample—and these workers benefitted most from the benefit bump. A worker in Louisiana who made $2,400 from part-time jobs all of last year would collect $2,516 a month in jobless benefits today—$29 a week from the state plus the $600.

Honda last week asked U.S. office employees to work on its assembly line because the $600 fillip has made it difficult to find temporary workers to run its plant in Ohio. An average worker who had made $17 per hour ($680 a week) in Ohio has been able to collect $940 each week with the federal boost.

The Yale economists did a separate analysis based on the Census Bureau’s Current Population Survey employment data from February through early May. But most businesses didn’t reopen or increase hiring until later. A recent Conference Board analysis found that new online job ads increased 60% from mid-May to late June.

Many businesses are hiring. The state of California ironically is looking to hire 5,300 workers to process an estimated two-month backlog of unemployment claims. California like many other states has reported a surge in fraudulent claims that has slowed processing.

Notably, states with more generous unemployment benefits for low-wage workers generally have had larger declines in labor-force participation. In Kentucky the lowest-paid 25% of unemployed workers on average have made 216% of what they did working. The state’s labor-force participation has declined 4.8 percentage points since February.

Senate Republicans have offered to extend the enhanced benefit by $200 weekly for two months, which would still allow many low-wage workers to make as much as they did working. Democrats are demanding that the extra $600, which expired on July 31, be extended into 2021. If you subsidize not working, you get less work."