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If you pay people not to work, they won't?

Wait a minute! No, I'm not buying this. Are you telling me someone could have paid me not to work and ...Hold on, I barely work as it is now?

Labor Lessons From the Pandemic

New research confirms that if you pay people not to work, they won’t.

By The Editorial Board

Oct. 5, 2023 6:34 pm ET

Silver linings from the pandemic are few and far between, but there are some. One is that the experience has given economists new opportunities to retest old theories about matters such as unemployment benefits and the labor market. And guess what: We now have more evidence that when you pay people not to work, they won’t.

That’s the conclusion of a new paper by Harry Holzer, Glenn Hubbard and Michael Strain (of Georgetown, Columbia and the American Enterprise Institute, respectively). Congress’s pandemic expansion of unemployment benefits—and several states’ resistance to that policy—created an unusual experiment that policy makers should mark.

The March 2021 American Rescue Plan made unemployment benefits more generous in two ways. The law extended a program that added $300 each week to a state’s standard benefit. A separate part of the bill expanded eligibility for unemployment benefits to workers such as the self-employed who wouldn’t ordinarily qualify.

Then federalism kicked in. Twenty-six states canceled at least one of the two programs before the September 2021 national phase-out set by Congress, and several of those ended one benefit but not the other. The opportunity to compare states that kept both benefits in place to those that canceled one or both provided a natural economic experiment.

The results are enlightening if not surprising. Ending one or both benefits early accelerated the transition of workers from unemployment to jobs. States that ended the benefits sooner saw their jobless rates among prime-age workers fall by 0.9 percentage point. The precise scale of the effects depends on which statistical method is used to crunch the numbers, but several different techniques yield similar findings.

This holds up even after the economists controlled for labor-market developments in states before they phased out one or both of the benefits in summer 2021. Meanwhile, the stark differences in employment faded after all states ended both programs in September 2021. These points signal that the unemployment benefits were the important factor, and not other tax or regulatory policies in the various states.

The results confirm what many labor economists have known for a long time: The more you pay people not to work, the less work they do. The contribution is to make that point using unusually stark data, and to clear up confusion that had crept into economic research after 2020. Some studies of the first year of the pandemic found less relationship between unemployment benefits and the level of employment, but that was during a period when a novel virus for which there was not yet a vaccine scrambled personal and business behavior.

By summer 2021, gravity had reasserted itself. Democrats in Washington have long since moved on to their next policy mistake and then the one after that. At least the rest of us can learn a few lessons in their wake.

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