Naples, FL — New research from the Foundation for Government Ability (FGA) demonstrates the devastating consequences an extension of the expanded unemployment insurance (UI) could have on the U.S. economy. By nearly tripling average unemployment benefits through its response to the COVID-19 pandemic and resulting economic crisis, Congress has created a situation where unemployment now pays better than work for 68 percent of Americans.
As states begin to reopen, this UI bonus discourages work and slows down recovery as employers desperately struggle to re-hire their employees. If the pandemic UI bonus is extended, the situation could get even worse. As many as five in six unemployed workers could collect more in unemployment than their potential earnings for returning to work, further disincentivizing their return to work.
Small businesses have taken notice of the real consequences of this misguided policy. FGA’s research shows that roughly two-thirds of small business owners are worried that their employees will not return, making it far more difficult to reopen while these unemployment benefits are still in play.
“The pandemic UI bonus undercuts the entire purpose of the unemployment system: to cover a portion of lost wages temporarily until the worker can quickly find work,” said Joe Horvath, paper co-author and senior fellow at FGA. “The pandemic unemployment benefit came from a place of good intentions, but the incentive to refuse work that it is now proven to create was predictable from day one.”
FGA recommends several steps states can take to move more individuals back to work as the economy reopens. Employees who refuse to return to work when called back are rejecting suitable work and are thereby ineligible for the program. States should set up simple, easy-to-use processes by which employers can report employees who have refused an offer of suitable work. Doing this will help maintain the solvency of unemployment trust funds, help restart the economy, support small businesses, and reserve benefits for those who truly cannot return to work.
Read the full report here.
The Foundation for Government Accountability is a non-profit, multi-state think tank that specializes in health care, welfare, and work reform. To learn more, visit TheFGA.org.