Twenty five Republican-held states are ending enhanced unemployment benefits in June or July before they are set to expire in September in accordance with Federal law. They argue that enhanced unemployment benefits are keeping people from looking for work, creating a labor shortage which slows economic growth and risks inflation. Some of these Republicans go on to make a moralizing case that these enhanced unemployment benefits are hurting America’s “work ethic.”
I’ll argue that increasing the level of economic production and employment are not as important as making sure everyone gets their basic needs taken care of, which the enhanced unemployment benefits help to achieve. Furthermore, I’ll argue there is a better way states can control inflation. Finally I’ll finish by mentioning that the “work ethic” argument is hypocritical on the part of business owners, financial journalists and right-wing politicians.
Size Doesn’t Matter:
Thinking about GDP and employment levels can be helpful in practical terms. We can assume that if GDP and employment suddenly dip, then we are entering a bad economy with an increase in homelessness, unemployment, etc.
But the truth is, everyone could get their basic needs met, even at much lower levels of production, if resources were distributed more reasonably. Even if our GDP was half as large, we could still provide everyone with clean water, housing, heating, wifi and adequate food. It’s a matter of political will.
Unemployment benefits discourage work compared to other forms of stimulus. However these other stimulus programs, such as a subsidy to big business such as the PPP program or a new fleet of battleships, generally won’t tackle the economic issues that really matter as much as the unemployment benefits.
Other Ways to Tackle Inflation:
A subtext of the labor shortage reporting is the right-wing narrative that President Biden’s policies will lead America into a period of unanchored inflation.
Here’s the argument: when unemployment is low enough, businesses will have to raise wages and pass those costs on, causing inflation to overshoot expectations, which could cause inflation expectations to rise.
I have previously written a blog post on how right-wing inflation fears are overblown. However, I also conceded in another post that unemployment is lower in Republican states. So some Republican states with especially low unemployment may reasonably be fearful of a period of time where prices rise uncomfortably fast locally.
Furthermore, it is true that enhanced unemployment benefits increase the risk of inflation. But I would argue the effect is mainly felt through benefits-receivers having money to spend, which increases demand for workers (rather than disincentivizing work and reducing supply).
However, States don’t have to cut unemployment benefits to tackle inflation. Literally any move to cut spending or raise taxes could have the same effect.
If I were a state official in a low-unemployment state, for example, I would preempt the worst effects of the housing bubble collapse by raising taxes on construction. One benefit of this would be to reduce the size of the construction industry in my state while the economy is still good, keeping my state safe from the effects of the collapse. Another benefit is that it would give me the chance to lower taxes on construction when the bubble bursts. Furthermore, unlike simply refusing federal money for enhanced unemployment benefits, a tax will give the state money to save for a rainy day.
Hypocrisy on Work Ethic:
Donald Trump, in a recent interview on Fox Business noted that “people’s attitude on work seems to be different beyond the money that’s an incentive that they not go to work.” He asked of the unemployment benefits: “Did it change their psychology on working?’” Ultimately he noted that he thought employees would be more “loyal” to their employers and “that there is a different feeling out there” in regards to “the level and degree of people wanting to work.”
Trump wasn’t the only rich person who was worried about the declining work ethic of the labor force. WSJ Opinion released a video by Daniel Henniger which opined “the Biden Democrats may have done long-term damage to the American work ethic.” And CNN’s Radical Centrist political commentator Michael Smerconish created a personal youtube video and then a CNN segment asking: “Is the American Work Ethic Dying?”
This haughty and judgemental line of thinking from Trump, Smerconish and Henninger will lead many to ask, “Who the fuck are you?”
The answer is simple. Trump, Smerconish and Henninger are all from a class of people whose incomes stem from the work of others. They, and the people they speak for, basically don’t need a work ethic. They can rest back and let their family-owned business or investment portfolio or nepotistically garnered high-paying media jobs and never have to do any work. When ordinary people ostensibly find that they too do not need to work in order to get by, the Henningers of the world panic.
So, why do they freak out, if dishonestly, about work ethics?
Firstly, if a labor shortage exists in mainly low-wage occupations, workers in those fields will see an increase in their wages and standards of living. Meanwhile, the more highly-paid workers may see an inflation-adjusted decrease in their standard of living.
Secondly, the smaller the overall level of economic output and employment gets, the less wealth goes to the owners of industry, who charge a markup between labor cost and sale cost of goods and services. When they have less money and power, they can do less to prop up decrepit institutions like the Wall Street Journal or the Republican party. In a world where the captains of industry have less power, we won’t have to listen to Michael Smerconish.
Ultimately, the labor supply depressing effects of enhanced unemployment benefits is overstated. What is of real interest is the panicked reaction to it from America’s elites.