Here’s how Congress could avert yet another unemployment benefit cliff if it is looking to break Covid relief
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Americans may get another dose of extra unemployment benefits – and policymakers are debating how best to deliver it.
A large number of legislators and economists would like to put help on the autopilot and phase out the additional services instead of switching them off at a certain point in time.
These so-called automatic stabilizers would help stave off a beneficial “cliff” such as occurred the day after Christmas when the previous pandemic temporarily waned for millions of Americans.
However, there are many schools of thought on how the goal can be achieved.
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Some think the best thing to do is to disengage workers from aid when economic metrics such as the unemployment rate improve. Others say public health measures like the number of Covid vaccinations could be a better barometer.
Ultimately, the metrics serve to inform the health of the economy and the labor market. And this is important because offering generous benefits in a healthy job market can deter workers from getting a job and stopping recovery.
But each approach has different advantages and disadvantages.
“It’s economical, so there are always tradeoffs,” said Ernie Tedeschi, political economist at Evercore ISI and a former senior advisor in the finance department.
President Joe Biden and the Democrats want to pass a $ 1.9 trillion pandemic rescue package by mid-March if current aid to millions of workers ends. While the final outlines are unclear, legislation would likely increase benefits by $ 400 per week through August, and possibly longer.
Biden initially called for the duration and level of relief to decrease “depending on health and economic conditions,” but did not identify a specific trigger.
The House Democrats did not include such a measure in a first draft law. But the Senate could choose, said Tedeschi. Senator Ron Wyden, D-Ore., Chairman of the Senate Finance Committee, supports the policy.
The unemployment rate seems to be an obvious starting point for such a political discussion.
“This is where rubber meets workers’ streets,” said Heidi Shierholz, director of politics at the Economic Policy Institute, a left-wing think tank and former chief economist at the US Department of Labor.
The concept is simple: the improved unemployment benefit decreases in line with the unemployment rate, which indicates an improved labor market.
Proponents generally envision pegging benefits to government unemployment rates (which can vary dramatically) rather than national statistics. For example, Nebraska and South Dakota had an unemployment rate of 3% in December; in Hawaii and Nevada it was over 9%.
Recovery is best supported by a plan that keeps aid to the unemployed going for as long as we need it, and no longer.
Economist, University of Chicago
Last year Wyden and Senator Chuck Schumer, DN.Y., now the Senate majority leader, proposed a $ 600 weekly performance increase in states with an unemployment rate of over 11%. The dollar amount would gradually fall and disappear after the national rate fell below 6%.
However, according to economists, there are some drawbacks to using the unemployment rate.
Mainly, it doesn’t capture all of the volatility in the job market – it leaves out people who are unemployed but not looking for a job. As a result, the actual unemployment rate across the country is likely to be higher.
This has gripped millions of people in the past few months, possibly due to childcare responsibilities, health concerns from Covid, or workers discouraged by a weak labor market. Such workers may be able to receive unemployment benefits based on expanded eligibility criteria in the pandemic.
“That was a great leeway from [labor] Weakness during the Great Recession and there is a lot of leeway right now, “said Tedeschi.
Lawmakers could consider broader labor metrics, such as changes in the employment-to-population ratio, economists said. This statistic measures the percentage of the working age population in employment and includes Americans who may have left the workforce.
Another option could be to link aid to the number of workers who receive unemployment benefits from the state. Such data is published regularly (once a week instead of monthly) and can identify economic problems more quickly than other measures.
But it can also be influenced by a state’s relative ability or inability to process claims quickly, or by high levels of fraud – which, according to economists, skew the economic picture.
Health interventions can also provide a reliable barometer of the uptake of improved benefits.
“Instead of being pegged to the unemployment rate, as others have suggested, we should tie pandemic unemployment benefits to vaccinations,” Peter Ganong, an economist at the University of Chicago, said in a recent tweet.
Vaccination isn’t a perfect policy approach, but it has two main advantages: aid would be available while the public health risk persists, and it sidesteps some of the problems associated with using the unemployment rate, Ganong said.
It probably makes sense to give U.S. labor officials flexibility to adjust vaccination thresholds when intake is low or new strains of the virus are a bigger problem, Ganong said.
“We have to be humble about how long it will be before everyone is vaccinated,” he said. “Recovery is best supported by a plan that keeps aid to the unemployed going for as long as we need it, and no longer.”
Difficult to design
Of course, the challenges of creating an automatic trigger may be a reason to avoid politics altogether, said Michael Strain, director of economic policy studies at the American Enterprise Institute, a right-wing think tank.
“I don’t share the enthusiasm that many people seem to have for this,” said Strain. “It’s really hard to come up with a good trigger because the economy is hard to predict.”
Such guidelines also make budgetary policy and forecasting difficult to carry out, he said.
According to Strain, unemployment benefits already contain a trigger mechanism: extended benefits. States automatically extend the payment period (even if not the wage level) to employees as soon as their unemployment rate exceeds a certain threshold. According to the Department of Labor, enhanced benefits are currently available in 20 states.
“Congress is a legislative body and its job is to pass laws,” added Strain. “I think even if we had the perfect trigger mechanism, they would still want to do things.
“Or they don’t want to use the trigger.”