In the wake of the COVID-19 pandemic, non-essential businesses across the nation closed their doors to slow the spread of coronavirus. This left millions of Americans—about one in five workers—out of work with no source of income. To avoid economic disaster, the federal government moved quickly. It began doling out supplemental unemployment benefits of $600 per week to the jobless in March. The relief package was scheduled to expire July 31, but lawmakers disagree on what benefits should be given after that date.
Providing effective aid in this unique situation is tricky. Millions lost jobs at no fault of their own. People needed income in order to pay their bills, especially for rent and mortgages on their homes. However, these benefits came with unintended consequences. With the combination of the $600 of federal aid and unemployment benefits from their states, many recipients actually received more income than they normally would if they were working.
Why is this a problem? An economist might call this situation a “moral hazard.” A moral hazard can occur when an entity takes on extra risk but is protected from the cost or consequences of said risk. The government counted on people returning to work when the option reopened. But the big unemployment package gave many an incentive to not work. Individuals are willing to risk long-term unemployment, especially when they can make even more than they did while employed. But the government and ultimately the taxpayer take on the cost of that risk.
As employers begin to reopen businesses, some employees say they don’t want to go back until the unemployment benefit runs out. That wasn’t the intention of the good-will weekly stipend! It was meant to help tide people over, assuming they would return to work when work was available again.
But it is sinful human nature to look out for oneself at the expense of others. Willfully taking publicly funded benefits for an extended time when one is able to earn a living is problematic.
Still, many jobs will not bounce back right away, so some stipend may be necessary. For instance, food service workers who rely on tips could make much less income than normal while restaurants aren’t authorized to open at full capacity.
Congress was still debating in June how best to deal with the unemployment crisis. Some push for the weekly $600 to continue through the rest of the year. Others believe extending the package will prevent Americans from returning to work, keeping the economy sluggish.
Most people want to work and get back to normal. But this is a complex situation that must be dealt with patiently and carefully—to care for individuals as well as the overall economy.