The problems facing Minnesota’s small businesses: higher welfare
In April, I had an op ed in the Star Tribune titled: ‘A new unemployment problem: it pays too well.’ In it, I noted the phenomenon of elevated levels of…
Recently, I had an op-ed in the Star Tribune in which I argued that increased federal unemployment benefits were one factor behind the phenomenon of record numbers of job openings coexisting with high unemployment. A typical response was some hand-waving about a lack of evidence. Since then, however, evidence has continued to mount.
A common argument against this proposition is that it is a lack of child care that is preventing people from reentering the workforce. A new study casts doubt on this, however.
In it, economists Jason Furman, Melissa Kearney and Wilson Powell III conclude that school and daycare closures are not driving low employment levels: indeed, they find that that the employment rate for parents of young children actually declined at a lower rate than it did for those without kids. The authors suggest that other factors, including increased federal unemployment benefits, are playing a role in keeping people out of the workforce.
This evidence is worth listening to. Furman chaired the Council of Economic Advisers in the Obama administration so he cannot be written off as some right wing shill.
A persistent early failing of the Biden administration has been its diagnosis of every problem as one of insufficient spending to be remedied by more spending. Claiming that a lack of child care options is responsible for restricted labor supply, they propose to spend vast amounts on child care. But if this isn’t the problem – and this analysis suggests that it isn’t – then they will incur all the problems of spending vast amounts of borrowed and printed money without any benefits to show for it.
The Biden administration inherited an economy that was recovering briskly from a massive, exogenous shock. If they are serious about keeping this going, they need to deal with the actual, supply side problems facing the economy. If they keep dumping new money into a supply-constrained economy, the only thing that will rise will be prices.
John Phelan is an economist at the Center of the American Experiment.