Commentary on Political Economy

Saturday 24 April 2021


Covid Unemployment Relief Makes Help Impossible to Find

Christie Phelps came near her Covid breaking point last year as she contended with a naughty 5-year-old boy, “the most hyper child I’ve ever been around,” in her Indianapolis home daycare. On a particularly bad day he urinated on her fence and cursed in front of playmates. Other child-care providers turn children like him away for behavioral problems, but Ms. Phelps realized that “he needs help.” These days she also asks herself: “How am I going to keep dealing with all this? This is too much stress. I don’t have no one helping me.”

Ms. Phelps, 46, has been trying to hire for months, but “no one is biting whatsoever.” Her business, Christie’s Love Bugs, cares for 11 pre-K children and 15 school-age children. She has only four staffers, all part-time, although she offers employees free training, help with certification, and as much as $25 an hour. With no one to fill the jobs, Ms. Phelps works 10- to 12-hour days. She says her mental health has already suffered so much that she’s in therapy, takes medication, and struggles to sleep.

Lots of entrepreneurs are overworked these days. The National Federation of Independent Business surveyed more than 500 small businesses and reported last week that 42% of them had job openings they couldn’t fill. “As long as we’ve been conducting the survey, it’s never been that high,” says Holly Wade, executive director of NFIB’s research center. Some 7.4 million jobs were open at the end of February, according to an April 6 report by the Bureau of Labor Statistics.

But there’s another reason for the acute labor shortage: It pays to stay on the couch.

Christie Phelps, owner of Christie’s Love Bugs, with pre-K pupils in her home daycare. PHOTO: PATRICK NYAMESHIE-FOLI

Some workers still fear they’ll contract Covid if they return to the workplace, and some parents are unable to take on full-time work because their children’s schools remain shut. But there’s another reason for the acute labor shortage: It pays to stay on the couch.

As Covid spread and the nation locked down last spring, Congress approved enhanced weekly benefits of $600, in addition to the usual state-administered unemployment payments, through July 2020. A working paper by the National Bureau of Economic Research found that 76% of those eligible for the $600 bonus could be given at least as much for being jobless as they’d earn by working. Lawmakers have since trimmed the enhanced unemployment benefits to $300 a week and extended them through September 2021. University of Chicago economist Peter Ganong says that even with the supplemental benefit halved to $300, “42% of workers are making more than their pre-unemployment wage.” And these analyses don’t count food stamps, rental assistance and other government help that may be available to the unemployed, or the stimulus payments that have gone to the employed and jobless alike.

In Indiana, the enhanced unemployment has meant that the jobless collected a maximum weekly benefit of $990, and now get up to $690—the equivalent of $24.75 an hour and $17.25, respectively. (The first $10,200 in unemployment compensation is exempt from federal income tax under this year’s Covid relief law.) Ms. Phelps is struggling to compete with what the government offers: “It’s making people terribly lazy. It’s making people not want to be part of the workforce. And that’s not good when the unemployment numbers are where they are”—3.9% in Indiana and 6% nationwide in March.

Ms. Phelps says she has watched in dismay as some of her daycare children’s parents have given up on seeking a job, and she says the enhanced unemployment has also made it tougher to be an employer. Workers slack off or make audacious demands. If they don’t get what they want, “they’ll quit on you, and then they’ll try to go get unemployment.” The BLS reports that some 3.4 million Americans quit their jobs in February. Under last year’s Covid-relief legislation, workers who leave voluntarily are still eligible for federal enhanced unemployment, University of Chicago economist Casey Mulligan notes.

“It’s making people terribly lazy. It’s making people not want to be part of the workforce. And that’s not good when the unemployment numbers are where they are.”

As vaccination rates rise, demand for goods and services is soaring, but there’s an enthusiasm gap between consumers and workers. The National Restaurant Association’s most recent survey found that 1 in 4 restaurant operators listed recruitment as their top concern, ranking it higher than Covid.

Texas restaurateur Eric Silverstein. PHOTO: INKED FINGERS

Eric Silverstein owns two restaurants and a catering company in Texas, where the jobless rate was 6.9% in March. “In my eyes, there’s no unemployment,” he says. “It’s not a thing right now. Anyone who wants a job can get one today—in like an hour.” Before the pandemic, he would get as many as 15 applications for an open cook position. “Now, we might get three.” He’s looking to hire as many as 22 people.

Adam Allison, owner of the Handlebar Diner in Mesa, Ariz., and Secret Handshake Coffee and Tea in Tempe, reports similar problems. The state’s unemployment rate was 6.7% in March, and he wants to increase his workforce by about 25%, but he estimates that only 1 in 20 applicants bothers to show up for a job interview. “We have our cooks basically taking shifts washing dishes because we can’t find a dishwasher,” he says. They’re not happy about it, so he’s had to increase their pay. “We’re like, ‘Just come work here, we’ll pay whatever you need, and we’ll make it work later.’ We obviously can’t do the business if we don’t have the employees. If we need to raise prices on the beer, that’s what we’ll do.”

“How do businesses grow in this economy, where people aren’t working?”

Kelly William Cobb, owner of Hunter House Hamburgers in Birmingham, Mich., says with tips employees can make $15 to $30 an hour, plus health benefits, in a state with 5.1% unemployment. “None of those things are seeming to lure people right now,” he says. He’s had to turn down catering jobs, and he worries about who will staff the food trucks this summer. “How do businesses grow in this economy, where people aren’t working?”

Mr. Mulligan, the economist, has estimated that as a direct result of the federal government’s $300 enhanced unemployment benefit, between three million and five million fewer people are currently employed. Ms. Phelps, the daycare owner, says her greatest fear is that Congress will extend that benefit beyond September: “If push comes to shove, and I’m left by myself, then that will be it for me. That would be when I say I have to shut down. I am sorry. I have no one who wants to work.”

Even businesses that don’t shut down will struggle to expand. The longer enhanced unemployment stretches on, the more likely it looks that job growth will trail economic growth, leading to production shortfalls and perhaps higher prices.

Ask Patrick Rossetto, president of Duro Dyne National, a sheet-metal supply manufacturer that serves commercial HVAC distributors. The company has manufacturing facilities in Cincinnati and Bay Shore, N.Y., as well as a distribution center in Longmont, Colo. Unemployment is 4.7% in Ohio, 8.5% in New York and 6.4% in Colorado, but hiring remains “a sore subject,” he says.

Mr. Rossetto wants to expand his staff from 228 full-time employees to about 260. Even for unskilled positions, he’s offering several dollars over minimum wage. He provides three-day weekends and generous overtime. He offers existing employees as much as $1,000 for a successful referral and gives a $500 signing bonus to new full-time hires. “We don’t have a lot of takers,” he says. “I think at this time, with the money that’s being given out, many people have decided to accept a subsistence-level lifestyle, and they stay home.”

Mr. Rossetto would love to run two Saturday shifts if he had the workforce: “The demand is there.” Instead, he's struggling to fill orders on time. Before the pandemic, Duro Dyne aimed to ship within three days, with the order 98% complete. Now, orders are filled in seven to 10 days, only 60% to 70% complete. That means multiple shipments, high freight costs, and customers who get irked because they have to prepare to receive split orders twice. “It’s affecting our bottom line,” Mr. Rossetto says.

Ending lockdowns is the first step toward economic recovery, but ending lavish jobless benefits is the next critical move.

Mr. Mulligan says that with unemployment benefits so high, joblessness “becomes a new occupation—it’s not that different than having an army, except these people’s jobs are to sit at home rather than go to a foreign theater.” He analyzed the BLS data on job openings and labor turnover and noticed that when the $600 unemployment benefit expired, the number of job openings dropped as more Americans returned to work. Ending lockdowns is the first step toward economic recovery, but ending lavish jobless benefits is the next critical move.

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