The unemployment [rate] was expected to fall to 5.8% and the economy was predicted to add 978,000 jobs, but that didn’t happen despite mass vaccinations and government stimulus…. not by a long shot.
So writes Matt Margolis in “Biden Bust: Unemployment Rate Up, Numbers ‘Way Worse Than Expected,” Inflation May Be Coming,” PJ Media, May 7, 2021.
No, no, no!
The increase did not happen despite the Biden “stimulus” bill; it happened in large part because of the bill, which was not mainly about stimulus. When the federal government pays people an extra $300 a week to be unemployed, a few million people who would have taken the many jobs available will instead take a summer holiday.
Here’s what I wrote in “An Unnecessary ‘Stimulus’“, Defining Ideas, March 5, 2021:
Of course, what we would really like to know is the effect of the double whammy of extending unemployment benefits through August and increasing them by $400 per week. The latter measure would cause millions of unemployed people to make more money by being unemployed than by being employed. My own admittedly intuitive guess is that if the bill passes with those benefits, at least two million workers who would have been working will be out of work. That one provision of the “stimulus” bill, in short, would create a drag on the economy.
(By the way, I got the $400 wrong; it’s “only” $300.) Later, co-blogger Scott Sumner made the same point here and cited the same study here that I had cited in my March article.
There shouldn’t have been much a surprise at all. And remember that the reason was Biden’s $1.9 trillion bill.
So no, not despite but because of.
UPDATE: The governors of Montana and South Carolina have stated that because the $300 per week extra federal unemployment benefit is discouraging people from working, they will end the benefit next month.
READER COMMENTS
Jared
May 7 2021 at 5:36pm
“UPDATE: The governors of Montana and South Carolina have stated that because the $300 per week extra federal unemployment benefit is discouraging people from working, they will end the benefit next month.”
This is great news, and I don’t (just) mean in the sense of “it will likely lead people to seek employment.”
Could we get another 23 or so governors to announce this, and could they decide to do so in a manner uncorrelated with the underlying labor market conditions in their states, please? It will really improve the power on the difference-in-difference I’d like to run…
David Henderson
May 7 2021 at 6:00pm
Spoken like a true social scientist.
Jon Murphy
May 7 2021 at 10:00pm
My thoughts exactly when I heard the announcements
Thomas Lee Hutcheson
May 8 2021 at 7:19am
It’s hard to understand why the unemployment benefits were not tied to the state of the labor market, but at least why not convert them into hiring bonuses? If you get a job, you collect the remainder up front.
But that’s just my (Matt Yglesias’s, really) suggestion for reform. What is Professor Henderson’s?
Jon Murphy
May 8 2021 at 8:59am
Yeah. Too bad there isn’t a vast, empirical literature that explores how politicians respond to incentives rather than act in a romanticized manner.
AaronG
May 12 2021 at 1:21pm
Let’s see, Professor Henderson argued before the stimulus bill that the extra federal UI benefits should not be part of the bill because it would increase unemployment. Since it was included, he is now arguing that the federal UI benefits are propping up the unemployment numbers. I don’t want to put words in Professor Henderson’s mouth, but it seems pretty clear that his preferred reform would be to end the federal UI benefits. And I think you know that.
Michael
May 8 2021 at 8:22am
It is worth mentioning some relevant context here.
This jobs number was as of April 12th. A lot has changed since then.
Covid-19 vaccines were not available to all people aged 16 and old in every state at that point. Tens of millions of people have since been vaccinated. On April 12th, the 7-day average of daily new Covid cases was about 69K… today it is about 45k.
It was still a big miss from expectations, but it is early to be calling this a “Biden bust.”
Dylan
May 8 2021 at 10:03am
For once, I’m in complete agreement. I saw a similar framing of the story on both the BBC and NPR yesterday morning and rolled my eyes. One of the stories made a very minor mention of expanded UI as perhaps a contributing factor, but buried it towards the end.
One of the companies I work with runs seasonal programs for kids. There’s (unsurprisingly) a ton more demand this year for the programs, but they are having trouble competing with the UI, which conveniently runs out the same week as their programs typically stop. They’ve looked into boosting the wage, but they would have to boost it quite a lot this year, and the business runs on pretty thin margins. They’re also worried that if they boost the wage this year, it will become the expectation in future summers and they wouldn’t be able to support that in a more normal year.
Brandon Berg
May 9 2021 at 1:54pm
Check out the Beveridge curve. It’s a couple of months out of date, but it clearly shows that job openings are far above where we would expect based on a 6% unemployment rate, flatly contradicting the Biden administration’s claim that the expanded unemployment benefits aren’t suppressing labor supply.
It’s really disappointing to see Janet Yellen backing Biden up on this. I thought she was better than that.
Comments are closed.