Does $600 a Week Make People Shirk? Evidence Is No

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Many congressional Republicans argue that people work less when they get $600 a week in expanded unemployment insurance (UI) benefits from the federal government, but a new Yale University study finds no evidence of that happening.

Here’s the Yale finding in a nutshell:

“We find that the workers who experienced larger increases in UI generosity did not experience larger declines in employment when the benefits expansion went into effect. Additionally, we find that workers facing larger expansions in UI benefits have returned to their previous jobs over time at similar rates as others. We find no evidence that more generous benefits disincentivized work either at the onset of the expansion or as firms looked to return to business over time.”

The team of researchers from Yale’s Tobin Center for Economic Policy drew on data from Homebase, which sells scheduling and time-clock software to small businesses, over half of them in the food and drink industry, which has relatively low pay and has had massive layoffs. That’s precisely where you might expect to see government checks discouraging employment.

Republican senators have had trouble agreeing among themselves how or whether to continue federal unemployment aid past its July 31 expiration, and concern about discouraging work has been a constant theme. “Common sense tells you that if you want people to go back to work then government can’t be an unfair competitor by paying people not to work,” Senate Finance Committee Chairman Charles Grassley said in a Yahoo! Finance session on July 23. Their latest plan is to cut supplemental benefits to $200 weekly, from $600, until states are able to create a system that would provide 70% of a laid-off worker’s previous pay up to a state-set cap, two people familiar with the plan told Bloomberg.

It’s a bit surprising that extra benefits don’t seem to raise unemployment, considering that many workers get a higher income from unemployment insurance than they got from working. One reason could be that workers who quit rather than being laid off aren’t eligible for unemployment insurance. They’re also required to keep looking for work, and they can lose their benefits if they refuse a “suitable” offer. On top of that, workers presumably realize that an employer’s paycheck is a better long-term bet than a check from the government that’s designed to be temporary.

The report has 10 authors, all at Yale. The primary author is Dana Scott, a Ph.D. candidate in economics.
 
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