‘Enhanced’ unemployment insurance is paying Minnesotans $26 an hour

Last week, I wrote about how increased unemployment benefits are preventing employers from hiring. This isn’t just a problem for Minnesota or for specific industries. As the Wall Street Journal reports:

The National Federation of Independent Business surveyed more than 500 small businesses and reported last week that 42% of them had job openings they couldn’t fill. “As long as we’ve been conducting the survey, it’s never been that high,” says Holly Wade, executive director of NFIB’s research center. Some 7.4 million jobs were open at the end of February, according to an April 6 report by the Bureau of Labor Statistics.

Some workers still fear they’ll contract Covid if they return to the workplace, and some parents are unable to take on full-time work because their children’s schools remain shut. But there’s another reason for the acute labor shortage: It pays to stay on the couch.

As Covid spread and the nation locked down last spring, Congress approved enhanced weekly benefits of $600, in addition to the usual state-administered unemployment payments, through July 2020. A working paper by the National Bureau of Economic Research found that 76% of those eligible for the $600 bonus could be given at least as much for being jobless as they’d earn by working. Lawmakers have since trimmed the enhanced unemployment benefits to $300 a week and extended them through September 2021. University of Chicago economist Peter Ganong says that even with the supplemental benefit halved to $300, “42% of workers are making more than their pre-unemployment wage.” And these analyses don’t count food stamps, rental assistance and other government help that may be available to the unemployed, or the stimulus payments that have gone to the employed and jobless alike.

In Minnesota, the increased unemployment benefits have meant that the unemployed collected a maximum weekly benefit of $1,340, and now get up to $1,040 — the equivalent of $33.50 an hour and $26.00, respectively. This goes a long way toward explaining why the Minnesota Department of Employment and Economic Development says that there are over 100,000 job postings in the state while, at the same time, the Bureau of Labor Statistics’ Local Area Unemployment Statistics show that there were 9,700 fewer Minnesotans employed in March 2021 than there were in September 2020. 

I wrote back in January that:

If unemployment insurance offers people an income comparable to working, many of them will opt not to work. 

And, as I wrote last week:

As more Americans are vaccinated and as more states lift their COVID-19 restrictions, the extraordinary measures put in place to deal with the economic fallout of the pandemic and government responses to it must be wound down. There should be no more stimulus payments and the increases and extensions to unemployment benefits should be phased out. If not, we risk a prolonged period of increased unemployment.

John Phelan is an economist at the Center of the American Experiment.