In a drive to continue generous unemployment benefits for American unemployed in lieu of actual work, HuffPost has claimed that the outsized COVID unemployment benefits have had no effect on the labor shortage the country is currently experiencing.
At stake here aren’t just unemployment benefits as a matter of fiscal or social policy.
Inflation is beginning to work in the economy with higher prices causing warnings from Treasury Secretary Janet Yellen and investor Warren Buffett.
This is rather extraordinary considering that unemployment is fairly high and the U.S. economy is coming out of recession. And labor shortages, economic watchers warn, can rapidly accelerate inflation.
When that happens, it just a matter of when, not if, the economy slips into another recession.
“While some employers may be struggling to hire for one reason or another right now, economists say generous unemployment benefits are not the cause,” according to HuffPost.
HuffPost, acting as a DNC mouthpiece, was responding to comments on Twitter by prominent Republicans in Congress who are concerned that the labor shortage may have a negative effect on the economy.
This is what happens when you extend unemployment benefits for too long and add a $1400 stimulus payment to it. Right when employers need workers to fully open back up, few can be found. pic.twitter.com/DlrQp8Vzw1
– David Rouzer (@RepDavidRouzer) April 30, 2021
To prove its point, HuffPost cited a few studies that looked at the expiration of COVID unemployment benefits in July of 2020 and determined that the expiration of those benefits didn’t affect labor markets.
While that may be true, it ignores the current situation in the labor market in May 2021, where fears of COVID are diminishing, as opposed to last July when fears of COVID were steady or accelerating-and when many were not ready or able to go back to work.
It also ignores that the New York Times acknowledges that unemployment benefits can cause labor shortages, and worse.
“If this apparent labor shortage persists,” says the Times, “it will have huge implications for the economy in 2021 and beyond. It could act as a brake on growth and cause unnecessary business failures, long lines at remaining businesses, and rising prices.”
That is not to say that there aren’t other factors that feed labor shortages, but only someone trying to make a political case to continue benefits would claim that “economists say” unemployment benefits have a neutral effect on the labor market.
The effects are pretty complicated and can most certainly cause labor shortages, economists would likely agree.
One reason why employment causes labor shortages is because of the multiplier effect that a working person causes when working.
A working person creates more economic activity by using transportation, buying clothes for work and generally being more economically active. That means more people are employed supporting someone with a job versus someone who is unemployed. If a self-reinforcing cycle that leads to more employment, thus labor shortages.
The HuffPo claim also ignores the short-term duration of the COVID unemployment benefits from June 2020 to July 2020 as a paper cited by the Post acknowledges.
“Going forward, future research would benefit from better understanding the source of this very modest employment response to UI benefit generosity, and whether it was driven by unusually low micro-level response of unemployment duration,” wrote Arindrajit Dube, an economist at the National Bureau of Economic Research.
It’s worth noting that the report from the NBER was not peer reviewed by economists before publication.
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