Small businesses are now having to compete with high unemployment benefits in order to keep workers

We have seen numerous times government policy intended to benefit some people producing some unintended negative effects.  The CARES Act is the most recent one of those policies with negative unintended effects. Workers are asking to be laid off because unemployment is simply paying better than being employed.

As a country, this is something we should have expected and accounted for. Research has proven over and over again that generous unemployment payments go a long way in making people prefer unemployment. Especially for low-wage workers, unemployment insurance may pay more or at least equal to their wages, making them prefer unemployment. This has been made worse by the extra funding that the CARES Act has provided to states. The CARES Act provides an extra $600 per week to state’s unemployment benefits.

As demonstrated by NPR, some businesses who wish to be open have lost workers over high unemployment benefits;

$600 per week. That’s what the federal government is now offering to people who’ve lost their jobs because of the coronavirus…

But the extra money can create some awkward situations. Some businesses that want to keep their doors open say it’s hard to do so when employees can make more money by staying home.

“We basically have this situation where it would be a logical choice for a lot of people to be unemployed,” said Sky Marietta, who opened a coffee shop along with her husband, Geoff, last year in Harlan, Ky… Even though she had customers, Marietta reluctantly decided to close the coffee shop just over a week ago.

“The very people we hired have now asked us to be laid off,” Marietta wrote in a blog post. “Not because they did not like their jobs or because they did not want to work, but because it would cost them literally hundreds of dollars per week to be employed.”

With the federal government now offering $600 a week on top of the state’s unemployment benefits, she recognized her former employees could make more money staying home than they did on the job.

As businesses have started to open there is a possibility a lot of businesses might face difficulty rehiring, with workers preferring to instead enjoy the temporary expanded unemployment benefits. And since these higher benefits extend till December, this might slow down business activity depending on the level at which employment is affected.