There is NO research that shows the $600 weekly unemployment benefit kept people at home
Treasury Secretary Steven Mnuchin fabricates an academic disagreement.
ABC News’s “This Week” included the following exchange between Martha Raddatz and Steve Mnuchin:
Raddatz: So -- so you do think it is a disincentive to find a job if you have that extra $600?
Mnuchin: There's no question in certain cases where we're paying people more to work -- stay home than to work. That's created issues in the entire economy.
But let me just say, you have to look at all these things --
Raddataz: I want to -- I want to interrupt you there for just one second. You -- it's not all the evidence. A Yale study from this month refutes that, saying many economists who have studied the benefits said that so far they don't see any evidence in labor market data that the payments are affecting at which people are returning to work during the pandemic.
Mnuchin: Well, let me just say, I went to Yale.
Raddatz: I know that.
Mnuchin: I agree on certain things. I don't always agree. There's a Chicago study that goes through all the people that are overpaid.
The $600 add-on to weekly unemployment benefits expired last week, and Democrats are trying to include it in a new coronavirus bill. Senate Republicans oppose renewing the $600 sweetener and have proposed $200 instead because they think paying people the extra $600 kept them from going back to work.
There is no evidence—none—that this is true.
The Yale study said: “We find no evidence that more generous benefits disincentivized work either at the onset of the expansion [of benefits] or as firms looked to return to business over time.” A June Brookings study reached a similar conclusion. And a week and a half ago, Ernie Tedeschi, a former Treasury Department economist, calculated from Census and Labor Department data that “70 percent of the UI recipients who returned to work were making more on UI than their prior wage.”
Mnuchin (Yale 1985) said he doesn’t agree with the Yale study. (His “don’t always agree” formulation may allude also to a letter from 300 Yale classmates that called for his resignation after Trump said, about the Aug. 2017 white nationalist rally in Charlottesville, Va., that there were “very fine people on both sides.” But we digress.)
It’s pretty doubtful Mnuchin was quarreling with the Yale study’s methodology. Rather, he was disputing its conclusion on the grounds that he found it politically objectionable. So Mnuchin cited instead the University of Chicago study about “all the people that are overpaid.”
In effect, Mnuchin was saying: Okay, sure, Yale says the $600 benefit didn’t keep people from going back to work. But the University of Chicago study said it did! The experts don’t agree, so I can believe whatever I want!
But there is no such academic dispute. It’s 100 percent made up. The Yale study and the Chicago study don’t contradict each other at all.
The Chicago study didn’t consider what people did or didn’t do as a result of receiving the weekly $600 sweetener. It calculated how the expanded unemployment benefits compared to workers’ salaries. With the $600 add-on, it concluded that the median unemployed worker was eligible to receive 134 percent of his or her former wages; that two-thirds of all unemployed workers were eligible for unemployment benefits that exceeded their previous wages; and that one-fifth of all unemployed workers were eligible to receive double their previous wages.
The Yale study, the Brookings study, and Tedeschi’s calculation examined data about what people are actually doing. The Chicago study did not. It looked at what non-working people were eligible to earn with the $600 sweetener. Presumably that bears some relation to what people actually earned, but the Chicago study didn’t purport to record that.
But lets assume it did, at least as of May, when the study appeared. You know what else happened in May? Unemployment fell. It’s hard to know exactly how much, because the official statistic was a little bit botched, but everybody agrees it fell. Then unemployment fell again in June.
We will likely learn later this week that unemployment rose in July, and I wouldn’t be surprised to see Mnuchin claim that was because of the $600 sweetener. But assuming unemployment did rise in July, Occam’s razor compels us to attribute that to Covid cases spinning out of control in July, interrupting in mid-stampede a premature national push to reopen businesses. Perhaps you read about it in your newspaper.
There is not, to my knowledge, a single study that demonstrates that generous unemployment benefits dampened employment during the four months they were in effect. Would it be a good idea over the long term to pay people more to stay home than to work? Probably not. But we’re in the middle of an out-of-control pandemic. Incentivizing people to take jobs that for the most part don’t even exist right now is not rational. Depriving them of income support during this desperate time is cruel. And misrepresenting the evidence on this urgent public policy question is irresponsible and wrong.
Update, Aug. 4: About five hours after I posted this Catherine Rampell made the same point in her Washington Post column. She very helpfully flagged some research I hadn’t seen: a study by economists at the University of Pennsylvania and the Federal Reserve Bank of New York that found “employers did not experience greater difficulty finding applicants for their vacancies after the CARES Act, despite the large increase in unemployment benefits”; and a second study, dated July 31, by an economist at University of Massachusetts Amherst, that found “there is no clear indication” that the add-on had any effect on employment. The second study is especially useful because its data extended into late July.
I initially cited three academic sources showing the $600 sweetener didn’t boost unemployment. Thanks to Rampell, I can now cite five. For lagniappe, here’s a tweet I missed Sunday from Peter Ganong, a principal author of the University of Chicago study:
People are trying to think rationally about a group that is irrational. "Emotions" are driving the decision-making process. Look for the underlying "emotional process" that is driving the irrational behavior.
I remain perplexed by the political strategy here. Senate Republicans' best argument was that the $600 led some people to earn more on UI than they did working. And it's not hard to see why in that situation it might discourage people from returning to work and in any case may not be particularly fair to people making less who still have to go to work. There wasn't anything stopping them from proposing capping the benefits at 100% of past wages. Or 80% of past wages. Or something slightly more complicated where it is a higher percentage if your wages were lower and a lower one if they were higher. Instead, they came in with $200. It doesn't really fix the issue (other than making it less likely), and it just makes them sound cheap.
Maybe the most maddening overall feature of this administration is not proposing bad policy, but proposing bad policy that has no real obvious political benefit. It's like pushing to get schools open before they are ready. If it were three weeks before the election, it created a sense of normalcy, and if it is going to blow up, it's after people vote, OK, at least I get the logic of it. Instead we do it now, and predictably there are almost immediately outbreaks all over the place.