May 11, 2021

Unemployment Benefits Should Not Stand in the Economy's Way


  • Businesses cannot find enough workers, even though millions of Americans are unemployed.
  • Some businesses say overly generous unemployment benefits that pay more than some jobs are contributing to the problem.
  • As more Americans are vaccinated and the economy recovers, it is essential that businesses be able to hire the workers they need to meet growing demand. 

Despite millions of Americans being unemployed due to the COVID economic shutdowns, businesses are reporting that they cannot find workers for open jobs. Many employers say generous unemployment benefits, including an extra $300 per week in unemployment cash from the federal government, are contributing to the nationwide worker shortage.

vastly expanded unemployment benefits

Regular unemployment insurance benefits are meant to provide temporary financial help while a person looks for a new job. States determine their own benefit and eligibility terms, and they tax businesses to pay for the benefits. Most often, states pay benefits for 26 weeks and base the amount on the recipient’s prior earnings, up to a weekly cap that ranges from $235 in Mississippi to $823 in Massachusetts. UI benefits normally do not fully replace a person’s prior income.

In response to government orders forcing businesses to close and people to stay home last spring, Congress provided an extra $600 per week through July 2020 to augment state UI benefits. Congress also set up other temporary federal unemployment programs to help people in need during the health emergency. The extra federal payment is currently $300 per week and lasts until Labor Day.

businesses report trouble filling jobs

Today the economy and the public health situation are far different than they were last year. When the economy was in crisis, there was bipartisan agreement to provide additional help. Unemployment reached 14.8% in April 2020. Now, while there are still 9.8 million Americans classified as unemployed, the economy is rebounding strongly, growing at a 6.4% annual rate in the first quarter of this year. A pre-pandemic program provided extra weeks of benefits in states with high unemployment. As of May 9, only 14 states qualified, down from 24 earlier this year, a sign of economic improvement. In April, the number of open jobs in the country reached a record 8.1 million. Payroll gains in April were much weaker than expected, though average hourly wages grew, suggesting that some businesses had increased pay to draw workers. Businesses are trying to hire workers and reopen at full capacity again, which could help the economy grow even faster, but they are reporting they cannot find workers.

The National Federation of Independent Business surveyed its members in April, and a record 44% of small businesses owners said they had jobs they could not fill. In April, the Federal Reserve’s “Beige Book” found similar hiring problems, especially for lower-wage workers, even though businesses were offering to pay signing bonuses and higher wages. Businesses including restaurants and hotels have said worker shortages are a serious problem, causing them to limit their hours and services and delay opening new locations.

Expanded Jobless Benefits Pay More than Some Jobs

Expanded Jobless Benefits Pay More than Some Jobs

The expanded unemployment benefits can add up to more than these businesses can afford to pay workers. According to the Department of Labor, the average weekly state UI benefit for the past 12 months as of the end of March was $318.25. Added to the weekly $300 federal bonus, an average unemployed person would have received more than $618 per week in unemployment benefits − $15.46 per hour. This is more than the average hourly wage in the U.S. for jobs such as a fast food cook, restaurant server or host, hotel desk clerk, retail salesperson, cashier, child care worker, or recreation park attendant.

Last year, CBO examined the effects of the extra COVID-era UI payments. The agency made a common-sense observation: “Receipt of unemployment benefits weakens the incentives of recipients to search for and take jobs … especially when benefits exceed a recipient’s potential earnings and when going to work increases risks to a recipient’s health.”

The governors of Montana, South Carolina, Arkansas, Alabama, Mississippi, and Iowa recently decided their states will soon stop participating in the COVID-19 related federal unemployment programs, including the extra $300 payment. They cited worker shortages. Montana instead will provide a one-time bonus of $1,200 to people who return to work. Idaho launched a return to work bonus program last July. Some members of Congress have also proposed a federal version of a return-to-work incentive.

Lingering fear of the coronavirus may be another factor keeping some people from returning to the labor force, as may the time constraints on parents who are caring for children with schools and day care centers not fully reopened. According to a Census Bureau economist, about 1.5 million fewer mothers with young children were working in March 2021 compared to February 2020. Public health officials and others have said schools can reopen with proper safety measures in place, and this would allow parents who left to care for children to be able to return to work.

The Minneapolis Fed president recently said these factors are barriers to people going back to work. He also observed, “There is some truth to the unemployment benefits, maybe, being a disincentive … I see that in the data and I see that in anecdotes as we talk to people.”

getting america safely back to work

The economic recovery is underway, and more than 34% of Americans have been fully vaccinated. Despite this, Democrats are pushing to permanently expand unemployment insurance. They have proposed requiring higher jobless benefits, offering benefits for more weeks, raising taxes on employers, and automatically tying benefits to economic conditions.

Republicans have said that unemployment benefits should help people while they look for work but not pay more than people would make from working. America’s economic comeback depends on businesses being able to hire workers. Federal unemployment policy must be targeted to help people who have lost their job while also encouraging them to return to work as quickly as possible. 

Issue Tags: Labor, COVID-19