In the midst of a pandemic, as the country recovers from the biggest economic crisis since the Great Depression, in many towns across the country you cannot help but notice the “We’re Hiring” signs. Despite the fact that the economy has not fully opened up retail stores, grocery stores and restaurants are seemingly desperate for help and in some places there have been reports of businesses closing because of the inability to hire enough people. How can that be?
Although the unemployment rate is much better than might be expected, it is higher for young people, low income and those with a high school education or less-the exact labor pool where businesses are struggling to find help.
A big part of the problem is that there is now a financial incentive not to work rather than to take an entry level job. The Federal government has added bonuses on top of the state’s normal unemployment insurance and is also sending monthly checks to households for every child that they have. Federal unemployment payments are the equivalent of $14.35/hour and when you add in the $300/month payments for children, with no strings attached and no matter how many children you have, why would someone work at an entry level job?
That may have made sense when most states closed down in the face of the pandemic. But now it’s just paying people not to work.
Don’t believe it? Well, the Dept. of Labor has several measures for unemployment and one of those shows that there are over eight million people less in the labor force than there were before the pandemic. That is eight million people who do not show up in the most quoted unemployment rate figures because they are simply no longer looking for jobs.
In three states, Arkansas, Montana and South Carolina, businesses are having such a hard time finding people to work that those states have already announced they are going to stop accepting the Federal unemployment bonus payment. Several more states are considering taking the same action. When states start turning down money from the Federal government, you know the problem is bad.
Yet, the worst part is that President Biden wants to make this permanent and, additionally, he has proposed to undo much of the welfare reforms of the last twenty-five years.
Biden’s “infrastructure plan” is spending the majority of money on items other than infrastructure and a good part of it is, in effect, expanded welfare programs. Biden’s plan will make permanent the checks to households for $300/month per child, no questions asked at a cost of $70 billion/year. It will also continue the Federal unemployment bonus to make unemployment insurance pay more than work, making it nearly impossible for employers struggling to reopen to compete for employees.
Simply put, part of Biden’s plan is to rebuild the welfare state. Before welfare reform was passed in 1996, one in seven children in the US was on cash assistance. Most of the families to which those children belonged had no one working, and were dependent on welfare for more than eight years. The implementation of work requirements, combined with increased day care assistance, led to a large increase in employment especially for single mothers and a significant decline in the people on welfare rolls.
Similarly, a paper published in 2015 by three economists looked at a similar growth in jobs the previous year. The paper argued, quite convincingly according to The Economist magazine and others, that a decrease in benefits had led to the creation and filling of 1.8 million jobs the previous year.
While on the surface it seems kind and caring to give generous benefits, there are three problems when the safety net designed for unexpected problems turns into a permanent way of life, like it was when a significant part of the unemployed had been receiving assistance for eight years or more.
- It rewards people for not working, paid for by people who are working and, as such, sets up bad incentives on both sides,
- by having people who could work, not have to work, it creates several issues with the economy: businesses cannot find help and so either suffer or pay more to get help which then drives up prices, impacted businesses are not spending money to buy equipment and so it has a ripple effect throughout the economy, and impacted businesses are not paying taxes on their profits so the tax burden increases on everyone else, and
- there is a strong cultural impact. While the thought of getting paid so you don’t have to work is initially very enticing, it creates a bad culture, both personal and societal. Whether we would admit it or not, there is a dignity and sense of self-worth that is created when you get what you have as a result of earning it. That is lost when you live off someone else for years. And societally, it creates a culture of entitlement, where there is a presumption that someone else with take care of you and if you don’t have what you want, it’s someone else’s problem to solve.
As a senator, Joe Biden was a fairly moderate Democrat who seemed to be governed by ideas. As President, he has taken a hard left turn and in his first four months has proposed increasingly radical programs. Among those has been the largest non-pandemic related spending bill in the history of the country, much of it designed to begin recreating the welfare state. For those who hoped he might govern from the middle, it has been a disappointment…and a developing problem for the country.