The EconomistJuly 25th 2020 United States 252 gress needs to pass a law. A better solution
to avoid recurring cliff-edges—automati-
cally tethering unemployment generosity
to local unemployment rates, as Michael
Bennet, a senator from Colorado, has pro-
posed— would do a lot of good. But because
it would limit political leverage in future
negotiations, it is unlikely to fly this time.
The negotiations, which began in ear-
nest only this week, must resolve many dif-
ferences. Democrats would like to extend
the generous unemployment benefits un-
til the end of the year. Republicans worry
that these are too generous. Indeed, for the
majority of eligible workers, the benefits
now exceed their former wages (see story
above). The Democratic proposal would
send nearly $1trn to shore up the budgets of
states and cities. Republicans worry that
this generosity would reward profligacy in
pre-pandemic times. Mr McConnell seems
to have two priorities: passing a liability
shield for businesses from lawsuits over
covid-19 exposure and incentivising
schools to reopen with cash grants. Both
sides at least seem amenable to sending
another unconditional cheque to Ameri-
cans, regardless of employment status.President Donald Trump is not a direct
interlocutor in these negotiations, leaving
Steven Mnuchin, his treasury secretary, as
the administration’s ambassador. Mr
Trump has offered some policy sugges-
tions, but they are not being taken very se-
riously, even among senators and repre-
sentatives of his own party. One is that the
bill include a holiday for the payroll taxes
that employers pay for Social Security and
Medicare, the government programmes
that provide pensions and health insur-
ance for the elderly. This would do nothing
to benefit the currently employed, but it
would deplete the trust funds for both
schemes. A second, reported in the Wash-
ington Post, is that the bill should strip out
billions in funding for additional testing
for covid-19. Mr Trump has been insisting
that the rise in cases is due to the rise in
tests. “Many of those cases are young peo-
ple that would heal in a day,” he told Fox
News. “They have the sniffles, and we put it
down as a test.”
Step back, and this strategy of repeated
enormous stimulus to cushion the blow of
an ineffectual national strategy for con-
tainment resembles a hospital that invests
mightily in palliative care while eliminat-
ing the oncology department. America has
already spent 13% of gdpon fiscal stimulus,
with more on the way. The most important
economic policy, in the absence of a vac-
cine, is to contain the virus’s spread. Leav-
ing it all up to governors no longer seems
like a viable White House strategy. Nor
does the campaign of attacking the public-
health messenger, Anthony Fauci.
Facing flagging confidence in his han-
dling of the crisis (and trailing in polls be-
hind Joe Biden, his Democratic challenger),
Mr Trump has resurrected his daily corona-
virus briefings. Presidential leadership of
this sort might be expected to add coher-
ence and clarity to what has been a helter-
skelter national strategy. In Mr Trump’s
case, it’s likely to make things worse. 7Big blue
Fiscalmeasuresinresponsetocovid-19*,% of GDPSource: IMF *At June 2020FranceChinaCanadaBritainBrazilAustraliaGermanyJapanUnited States5 15 2530Loans,equityandguaranteesAdditional spending/forgone revenueS
incethe$2trnstimuluspackagewas
passed in March, America has tempo-
rarily had one of the world’s most gener-
ous unemployment-insurance (ui)
systems. Some fear this comes at a steep
price. With the unemployment rate still
in double digits, are munificent state
handouts stopping people from looking
for new jobs or returning to old ones?
During the recession a decade ago,
Robert Barro of Harvard University calcu-
lated that nearly a third of unemploy-
ment in 2010 was due to prolonged and
more generous uibenefits. But if econo-
mists thought uiwas generous then,
they have seen nothing yet. Seven in ten
of those on uinow receive benefits great-
er than their wages, studies suggest.
One-fifth of those on benefits are receiv-
ing double what they previously made. If
people can earn a dignified living from
the state, why bother to seek work?
One reason is that for many Ameri-
cans jobs are tied to health care and
retirement programs. It makes no sense
to turn down a job with potentially life-
time benefits to cash in a few more ui
cheques. Many workers do not even have
the option of doing so. Some states ob-
lige employers to report employees who
decline to return to work. Those workers’
benefits are stopped if the refusal to work
is not due to health concerns.
So far there is little evidence to sug-
gest that the extra $600 a week is slowing
down the labour-market recovery. If
bosses were struggling to fill positions,
you might expect vacancies to be high. In
fact the number of job vacancies in April
was the lowest since 2014, at only 4.9m
openings (though it has recovered some-
what since then). Homebase, a company
that provides scheduling tools to busi-
nesses, tracks small hospitality and retail
firms. Applicants per job doubled in earlyApril,suggestingthatlaid-offworkers
were quick to look for something else.
Another signal that employers were
struggling to fill positions would be
soaring wages. Workers might hold
bosses hostage with the threat of settling
for benefits instead. Upon first inspec-
tion, this seems to be true. Average hour-
ly earnings in the second quarter of 2020
increased by about 7% from a year ago,
according to Goldman Sachs. However
this is largely because low-paid workers
have lost jobs in disproportionate num-
bers, dragging average wages upwards.
All of this implies that the main factor
behind the high unemployment rate is
lack of jobs, not an unwillingness to
work. Economists normally fight like
cats in a bag. But an astonishing 0% of
those surveyed by researchers at the
University of Chicago disagreed with the
idea that “employment growth is cur-
rently constrained more by firms’ lack of
interest in hiring than people’s willing-
ness to work at prevailing wages.”One-handed economics
Work and incentivesUnemployment benefits are not yet discouraging people from job-searchingHomo economicus