20 United States The EconomistMay 16th 2020
21they are self-employed, business owners
or have an irregular work history, can now
apply for benefits. And the extra $600 a
week means that some can expect a hefty
pay rise (see right-side chart). Goldman
Sachs, a bank, estimates that three-quar-
ters of laid-off workers are in line to receive
benefits that exceed their former wage.
Payments may be slow to arrive, but work-
ers will in theory receive back-pay when
their claims are finally processed.
The creation of some odd economic in-
centives was, to an extent, unavoidable.
The states’ uisystems are archaic, relying
on programming languages devised as
long ago as 1959, making it impossible to
tailor payouts more sharply. Hence the flat
$600-a-week boost, which is, roughly, the
difference between the national average
weekly wage in 2019 ($970) and the average
unemployment payout that year ($370).
Giving some workers more money than
they had earned in a job may not be the best
use of public resources, but the people who
benefit most are likely to be among Ameri-
ca’s poorest. And the money thus “wasted”
(about $80bn, on the highly unrealistic as-
sumption that 30m workers are on the pro-
gramme for an entire year) would amount
to just 3% of America’s total fiscal stimulus.Back to work
Anyone hoping to game the benefits sys-
tem is likely to be disappointed. Regula-
tions are designed to foil people who quit a
job in order to pick up an unemployment
cheque. Having to quarantine because of
household illness or care for a dependant
with covid-19 will not cause anyone to lose
their ui; refusing to work out of a general
fear of illness will. Some reopening states,
including Iowa, Ohio and Texas, encourage
employers to report workers who refuse a
job offer, disqualifying them from benefits.
Some economists want the government
to do more to encourage employers to re-
duce working hours rather than laying peo-
ple off—especially useful when businesses
are allowed to reopen but face weak de-mand. With such programmes, explains
Annelies Goger of the Brookings Institu-
tion, a think-tank, workers “don’t get the
message that they’ve lost their jobs. They
get the message that things are on pause.”
Just over half of American states have
short-term-work programmes, with ui
covering the lost hours, but take-up had
been low. Since the pandemic began
take-up has increased, and Michigan has
expanded its programme; workers in the
schemes remain eligible for supplemental
benefits. Katharine Abraham at the Univer-
sity of Maryland points to research sug-
gesting that merely raising employers’
awareness of such programmes could
make a big difference.
Another option would be to prolong the
more generous unemployment system
past July. Michael Bennet, a Democratic
senator from Colorado, has proposed ex-
tending the current level of federal uiuntil
the public-health emergency ends, and
then gradually reducing benefits. But at
some point such payouts will hinder the
economic recovery, in particular the reallo-
cation of workers from declining sectors to
up-and-coming ones. Some research has
indicated that a reduction in unemploy-
ment benefits in 2014-15 helped kick-start
America’s pre-pandemic jobs boom.
Most probably, the unemployment sys-
tem will return to its pre-pandemic ways
sooner rather than later. Lindsey Graham, a
Republican senator, has said the $600-a-
week programme would be extended “over
our dead bodies”. The economy is reopen-
ing and bosses are looking for workers.
Congressional Republicans have pressed
for broader protections for employers,
similar to those given by President Donald
Trump to the meat industry, which would
shield them from liability for covid-related
deaths provided they follow minimum fed-
eral safety standards. Democrats may re-
luctantly fall in line in exchange for more
state and local aid in the next round of re-
lief. Before long, many American workers
will face unpalatable choices. 7Love of labour lost?
UnitedStatesSources:CensusBureau;BureauofLabourStatistics;GoldmanSachs *Yearlybefore1948, monthly from 1948 †Layoff-weightedUnemployment rate*, %
3000 600 900 1,200 1,FinanceConstructionManufacturingHealthEducationAverage of all
industries†Retail salesLeisure servicesAverageunemployment-insurance benefit
Byindustry/occupation,2019-20,$ per week
State Federal ($600)Average
weekly
earnings2520151050
1890 2020008060401920M
ost americansworry that they live
in an age of reduced social mobility.
Raj Chetty, a Harvard economist, has done
as much as anyone to provide empirical
heft for that malaise. Armed with data from
nearly all the tax returns filed in America
for decades, he and his co-authors have
pieced together an astonishing series of
findings: that absolute mobility (the
chance that a child will go on to earn more
than their parents) has dropped from 90%,
a near certainty, to 50%, a coin-toss; that
the gap in life-expectancy between rich
and poor has widened even as that between
blacks and whites has narrowed; and that
although the chances of upward mobility
differ greatly from one neighbourhood to
the next, in nearly every part of America the
path for black boys is steeper.
Mr Chetty has also compiled evidence
that mobility (or immobility) depends a lot
on the types of neighbourhood that Ameri-
cans grow up in. Re-analysing the Moving
to Opportunity (mto) experiment, which
randomly assigned vouchers to poor fam-
ilies in five American cities to live in less
poor places, he and his colleagues found
dramatic effects for children who moved
while young: a 32% higher chance of at-
tending college and 31% higher earnings.
His research consortium has ranked neigh-
bourhoods according to their chances of
propelling poor children upwards, pub-
lishing an online Opportunity Atlas. A new
mto-style experiment in Seattle is investi-
gating these dynamics in real time.WASHINGTON, DC
Two leading economists disagree about
the flagging American DreamSocial mobilityIs zipcode destiny?