Unemployment Bonus Proves Its Harm

Job openings declined sharply in August, after the $600 weekly payments stopped

By Casey B. Mulligan and Stephen Moore.

"Congressional Democrats and some Republicans are frantically trying to stitch together another $1 trillion “stimulus” bill. Why? The economy and jobs market have far exceeded expectations of recovery even without the spending spree first proposed by Speaker Nancy Pelosi in July.

Since then, employers have added six million jobs—more than the Federal Reserve and the Congressional Budget Office predicted they would. The unemployment rate fell from 13% to 6.9% in six months, no stimulus necessary.

In July we warned on these pages that six more months of $600-a-week bonus unemployment benefits would keep millions of Americans out of the workforce. The CBO calculated that “roughly five of six recipients” were getting more from unemployment payments than they would earn from working. Many workers could get twice as much income for staying unemployed.

Yet the CBO and many academic economists strangely concluded that continuing these payments (on top of normal unemployment benefits) would be good for the economy because of their effect on consumer spending. Paul Krugman predicted in August that the consequences of not extending the benefits were “terrifying” and would “push overall consumer spending . . . down by more than 4 percent.”

President Trump didn’t fully suspend bonus benefits—which would have been optimal for job growth—but he did cut them to $300 a week. Americans subsequently rushed to fill jobs and the unemployment rate fall rapidly. So much for economic ruin.

Bureau of Labor Statistics data show that from May through July—when unemployment benefits were high—job openings surged. As the Journal reported, employers complained they were having trouble rehiring workers.

Once the high benefits expired in August, job openings fell for the first time since the start of the pandemic. This certainly wasn’t because the economy was faltering. Third-quarter gross domestic product surged at a 33% annualized rate. The warnings from the CBO and Mr. Krugman were all wrong: Even as the bonus benefits were cut in half, retail sales increased 3% from July through October.

We estimate that Mr. Trump saved between three million and five million jobs by refusing to cave in to Democratic demands for six more months of supplemental benefits.

What’s the lesson? Extending the $300 weekly bonus benefits for 18 more weeks in the “slimmed down” bipartisan bill would pay almost half of all unemployed workers more for staying home than for going back on the job. We estimate this would reduce employment by about three million to four million workers. Democrats beware: This would happen on Joe Biden’s watch. That’s a stimulus the economy doesn’t need."