CNBC.com reported last week the cringe-worthy story of Jamie Black-Lewis, a Washington State spa owner facing an employee revolt. Black-Lewis employs 35 people. She isn’t permitted to operate during the state’s virus-containment lockdown, so she was delighted to receive a federal loan that would allow her to make payroll. Her workers were not. They were angry they would continue to be paid, because it meant they wouldn’t be able to apply for unemployment compensation.
This is not how a social safety net is supposed to work.
Congress voted in March to augment state unemployment benefits by $600 per week irrespective of the unemployed worker’s prior pay. They also extended unemployment benefits to 39 weeks, far beyond the plausible length of any quarantine. By paying her workers and trying to do the right thing, Black-Lewis deprived them of a windfall.
“I couldn’t believe it,” CNBC quoted the spa owner. “On what planet am I competing with unemployment?”
Another businessman, Kurt Huffman of ChefStable restaurant company in Oregon, described the same problem in the Wall Street Journal last week. ChefStable is running at reduced capacity, but they do need some workers to fill takeout and delivery orders. Huffman is having trouble finding them, though, even though starting pay for a line cook at his company is $15 per hour, plus about a dollar an hour in shared tips, which is $640 for a 40 hour work week. Under normal conditions, a cook displaced from that job could apply for unemployment benefits and receive something less than that, about $416 per week.
Receiving $416 per week isn’t a living, but it isn’t supposed to be. It’s emergency help. With new federal enhancements, however, the cook’s weekly unemployment income will be over $1,000, nearly a 60% raise from his working wage. Under such circumstances, why would he return to work? The question isn’t one of work ethic, just arithmetic.
On the other side of the country, in Kentucky, a coffee shop owner named Sky Marietta wrote in detail on her shop's web site about the local effect of pandemic relief programs, including the $600 weekly unemployment bonus that makes it uneconomical for her baristas to work. The essay is worth reading in its entirety. Sky opened her coffee shop in part to provide living-wage jobs, but she can’t compete with the government.
This is all a mix-up, right? Congress voted in a poorly designed aid program in a rush, but surely they didn’t mean to discourage work and close businesses? One would hope not, but Pennsylvania’s governor Tom Wolf gave a strange answer when asked at an April 20 press conference:
QUESTION: “A business owner asks: if we have employees that are currently laid off and we call them back to work, and they tell us that they don’t or won’t come back because they are getting paid more with unemployment and the $600 bonus in a week than we’re paying them, what can we do? Can their unemployment be revoked?”
WOLF: “No. And as a former business owner, if you ever face that kind of situation, there’s one really simple thing you can do as a business owner, and that is raise the compensation of your employees.”
Refusing work in order to draw government benefits is fraud. The governor was speaking off the cuff, and his spokesman clarified later that citizens must obey the law. Still, the exchange was telling.
Wolf has already included a $15 minimum wage and paid family leave as the first and third points in his virus response plan (phase 3: recovery, linked here). Forcing businesses to bid against the government has nothing to do with getting Pennsylvania back to work. It looks more like backdoor implementation of “universal basic income,” a government guarantee of living standards for everybody. Nancy Pelosi mentioned the idea just today as worthy of consideration in coming virus relief packages.
To be sure, much of Pennsylvania and the country still can't work: 4.4 million Americans applied for jobless benefits last week and nearly 27 million have applied since the beginning of March. Most of those applicants really do need the money. The economic hurt from the virus is real. The anecdotes given above, however, are also real.
Distorted incentives will become increasingly noticeable as businesses begin re-opening. A return to full employment may well be slowed, and many honest workers who do the right thing will lose at the expense of those who stay home. As the nation reopens it is important that the unemployment bonus expire as scheduled in July and any future aid be better designed.