There has been a lot of news in the media lately that has stated, either expressly or by implication, that the expanded unemployment benefits are the reason why most people are not returning to work. This is simply not true. There are two very real reasons why people have not returned to work: fear of Covid and lack of jobs. It is quite a sad fact that in some states, people would receive more from unemployment than from their jobs, but this not true in all states.
While I am speaking mostly for New York City and New York State residents, it is undoubtedly true that similar situations with fear and lack of jobs that exist in other states. Look at this article about restaurants reopening in South Carolina and the risks diners are taking by going to them. There are two states, Montana and South Carolina, that have decided to arbitrarily remove unemployment benefits that their residents are entitled to. This is on the basis of a slower economic recovery than expected, and is not on the basis of scientific inquiry or facts. It is on the basis of the U.S. Chamber of Commerce’s recommendation.
Said recommendation is in contradistinction to several studies that were conducted during the pandemic, including one by Yale University, that showed that the unemployment benefits had a negligible effect on workers wanting to return to work.
Last Year’s Break In Expanded Unemployment Benefits Did Not Lead To A Stellar Economic Recovery
It is this author’s opinion that if these states were, in fact, correct, and the slow recovery was due to the enhanced unemployment benefits, then there would have been a huge surge in re-employment back in September through December of 2020. Do you remember that time? That was the window during which there was no new economic stimulus bill, and those receiving unemployment were dropped down to base UI benefits.
This means that those individuals were receiving, on average, between $50 and $250 per week, depending on the state and if they were getting PUA (gig workers, freelancers, etc) or regular UI because they had lost their regular full time work. Let us remember the numbers from back then. No one can really afford to live on such a small income. But there was no surge in employment due to the fact that the expanded benefits were removed. What was the reason for this? In most states, the jobs were simply not there.
There were also disappointing jobs numbers in September and the jobs numbers in October were not as high as expected, either. However the number of people claiming unemployment benefits did fall, as the amount of money received from benefits was not necessarily that helpful.
Many of those families may have applied for food stamps and welfare instead. You can see by the food assistance chart that food assistance applications continued to rise through the end of the year 2020.
Capacity Limits And Failed Small Businesses Have Kept The Economy From Recovering In Some States
In New York, for example, restaurants, bars, nightclubs, and events, as well as spas, salons, and other businesses, were allowed to open only at 50% capacity. This has only changed as of the 7th of May, where the capacity has been raised to 75%. So, here is a question: when a restaurant is allowed to open to 50% capacity, how many employees are they going to hire back? If you answered 50% or less, you are correct. That means a full 50% of jobs that were in the arbitrarily designated non-essential category were simply missing. They were not available.
In addition to this, the sad fact remains that many, many businesses were closed. That means their workforce capacity vanished. In New Jersey, about a third of small businesses failed and did not reopen when they were allowed to. They were simply not there. That would translate to a third less jobs that are available. And that is in just one state.
Other states have seen similar closures, as the federal data shows that 72 million workers in the US were employed at an establishment that experienced reduced demand according to the Bureau of Labor and Statistics. According to the Federal Reserve, an additional 200,000 businesses closed above the usual annual number. Out of those 200k, 130,000 were individual, or small businesses. Small businesses are responsible for employing most of the workforce, and many of them did not survive.
This is simply one reason. It may or may not be the most important reason, as media-stirred fear of the pandemic has had a large role to play in all of this. Not only has the pandemic created a lowered demand for services people used to have all the time, it has also led to fear on the part of employees to return to work.
Fear Of The Pandemic Has Made Workers And Patrons Alike Afraid To Obtain Services That They Would Have Not Thought Twice About In The Past
It may also not be fear of the employee themselves, but it may be fear for or of one or more of their relatives that has led them to not return. So there is fear on the supply side and fear on the demand side, the marriage of which is leading to inflation. This is an inflation that most people on an individual basis have noticed, and is likely to decrease demand for more expensive services even more.
Some of the services that have been affected the most are hair salons, alternative healthcare providers such as acupuncturists and massage therapists, hospitality (hotels, etc.), and other businesses where close one-on-one contact cannot be avoided.
Unlike in a hotel, where some measures can be taken, if you are going to the spa to have a spa treatment of any kind, there is no social distancing that can legitimately be practiced. As a result, schools for these kinds of providers are also having a problem enrolling students, which is likely to lead to some schools laying off their staff members of closing entirely, since they cannot survive on such lowered income.
By way of example of the long-term problems of fear as related to job growth and the pandemic, I have spoken with several people that I know about these situations. One person is a therapist, and she provides physical therapy in patients’ homes. At one point in the pandemic, she had returned to work.
However, her parents were her go-to babysitters for her three-year-old son. One day, they told her that they were afraid that she was going to get them infected with Covid, and that they would not babysit her son anymore to allow her to potentially expose them. Thus, she is now out of the workforce against her own will, since she cannot afford to pay a babysitter, and she has no one else to watch her son.
Another girl I know is in the hospitality business. She has a small son in first grade. In her particular county, the schools reopened, but every three days, someone tested positive, and the school had to close for two weeks. Not only that, but she had to quarantine for the duration of that time. Thus, she was pretty much out of the workforce, and remains so to this day. I did not ask if she is getting unemployment benefits, but I assume that she did, as she would have needed to receive them to survive.
And these are just two examples. I could go on and on about the businesses whose demand has been lowered so much that even though they could legally hire back their employees, they would be paying them from their savings instead of from the business. Most businesses are not charities, and are not in a position to pay people when their company is failing.
You Cannot Force An Economic Recovery, No Matter How Badly Needed Or Desired
The real reason for the poor jobs numbers is that, even though we all want an economic recovery, you cannot force these kinds of things. People have become so conditioned to be afraid that it is going to take more than a couple of months to get them to become less afraid. The last year has been an experiment in getting people to be so afraid of something that they cannot see that they won’t even leave their houses.
Not only that, but Covid is not over. If you look at India, and the variants that are ravaging their population, it should be quite clear that we might not even be out of the woods yet. Covid is still something to be highly feared by most people, and the economic recovery that we are all hoping for might be a lot farther away than we thought.
However, taking away the crutch by removing unemployment benefits, while the economy is still healing, is suicide. Those states which have made this choice are, unfortunately, quite likely to see food bank lines half a mile long, and a homeless crisis which they are unlikely to be able to handle.
This is especially true in light of the federal judge’s ruling last week that basically said that the CDC does not have the legal authority to force landlords to keep non-paying renters in their homes. Add to that the removal of UI benefits, and these states may be signing up for a firestorm of an economic disaster.
Hopefully, they will change their mind and listen to the science instead of the Chamber of Commerce. Only time will tell.