It should not be this hard to reach a bipartisan compromise when it comes to the $600-a-week federal unemployment supplement Congress approved earlier this year to help Americans who lost their jobs during the lockdown. But House Speaker Nancy Pelosi, D-Calif., has made clear she prefers to let the benefits expire rather than compromise with Republicans, so that she can blame President Donald Trump for the pain inflicted on Americans.
Economists on both the left and right agree that we need to responsibly phase out the temporary federal enhancement. Ending it with no replacement would hurt workers and damage the economy. But continuing it in its current form would hold back our economic recovery by creating a disincentive for millions of Americans to return to work — because they can make more money staying home.
According to the University of Chicago and American Action Forum, 60% to 70% of individuals on unemployment are making more than they did in their last job thanks to the federal supplement — and the bottom 20% of wage earners are making, on average, double what they made before. If the $600 supplement continues unchanged for six more months, the nonpartisan Congressional Budget Office estimates that “roughly five of every six recipients would receive benefits that exceeded the weekly amounts they could expect to earn from work during those six months.”
The federal supplement did not affect employment during the lockdown, because the economy was shut down and there were no jobs available. But now that businesses are reopening, employers trying to rehire workers are finding that they can't compete with enhanced unemployment. Nearly 1 in 5 small businesses report that they have had an employee turn down a job offer to remain on unemployment. According to NPR, more than 13,000 manufacturing jobs in Ohio remain open in part because of enhanced unemployment. Honda is so desperate, for example, it is actually having white-collar workers reassigned to assembly lines.
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Those who argue the federal subsidy has no impact on employment are the economic equivalent of anti-maskers. Just as it's common sense that if you have COVID-19 and you breathe into a mask, you're less likely to spread the virus, it's also common sense that if you are making more money not working, you're less likely to rejoin the workforce.
There are bipartisan solutions. Former Obama treasury secretary Timothy Geithner, Obama economic adviser Jason Furman and others have put forward a bipartisan plan that would phase out the federal supplement by tying it to each state's unemployment rates. The supplement would be capped at $400 a week, with the precise amount pegged to a worker's previous earnings. In states that cannot calculate previous earnings, the supplement would be capped at $200. It would be eliminated once a state's unemployment rate drops to about 7%.
This is a perfectly reasonable proposal. And it shows that when politics are removed from the equation, it is possible to reach a bipartisan compromise. But Democrats don't want a bipartisan compromise. They are insisting on extending the $600 a month until January with no changes and have refused to even pass a temporary extension of the program while the two sides negotiate.
A stalemate benefits Democrats politically, but it is the worst possible scenario for the American people. Letting the federal supplement expire without a plan to phase it out would wreak havoc on the economy. According to Michael Strain, director of economic policy studies at the American Enterprise Institute, doing so would reduce overall personal income by about $50 billion per month, and “depress overall consumer spending by several hundred billion dollars in the second half of 2020, which by itself could cause a recession-level contraction in economic output.” Congressional Democrats apparently have no problem with that, because they know a strong recovery boosts Trump's chances of reelection.
In other words, Pelosi has no incentive to negotiate. If Republicans capitulate, Democrats win — because the $600 supplement will slow the recovery while they get credit for forcing the GOP to give unemployed Americans a massive cash infusion. And if Republicans don't cave, Democrats also win — because people lose their benefits, the recovery craters and Republicans get the blame. The only scenario in which Democrats think they lose is compromise — because they would have to share credit with Trump for doing the right thing. And for Pelosi, defeating Trump is the only thing that matters, regardless of how much pain it causes working Americans.
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