And Then There’s the Carrot

When April’s jobs numbers disappointed, the governors of South Carolina and Montana responded by cutting unemployment benefits. The idea is that, given the low minimum wage in those states, some low-wage workers are making more money by staying home and cashing unemployment checks than they could make working. Stop mailing the checks and they will get back to work—and work is good, because work means more restaurants can reopen and stay open for longer hours, making consumers happy.

Herein, of course, the stick: make workers lives’ worse so that they will cry uncle and go back to work.

Then there’s the carrot: convert the unemployment benefits into handouts. That is: stop conditioning the delivery of those unemployment checks on proof that the worker is unemployed.

That would send workers back to work because when you live at the bottom end of the income distribution you can always use more money. Even if you are already getting an extra $300 per week in unemployment, you are not exactly living the good life. You will go back to work to earn another $300 if the government won’t cut your $300 unemployment check if you do so.

Removing the requirement that a worker be unemployed to earn the current batch of extended federal unemployment gives workers a carrot for working: the extra wages they can earn, above and beyond those unemployment benefits, by going back to work.

I know removing that requirement undermines the paper rationale for unemployment insurance, which is to tide over people who are looking for work. But this country has a major inequality problem, this would be a one-time thing and Congress has already appropriated the money, and those currently receiving benefits (who, under this plan, are the only ones who would be made eligible to continue to receive payments even if they go back to work) are more likely to be poor and deserving than the vast swaths of the middle class that received stimulus checks over the past year.

(It might be a little unfair to those who did find jobs and went back to work, or those who didn’t lie about looking for work in order to get their checks. But as between a little unfairness and the stick, I say we go with unfairness. And if there’s money in the extended unemployment budget to pay out benefits to those who went off unemployment early, then we should do that, and the unfairness would be much reduced.)

Plus the fix that President Biden has mooted—making sure people on unemployment really are looking for work—is impossible to execute without a lot of unnecessary bureaucracy, which the Administration is not likely seriously to pursue anyway.

If you have the choice between achieving efficiency (getting people back to work) using the carrot or the stick, and the carrot is there, why not use it?

The worst you could do is make the poor a little richer.