Are Employees Making More Not Working?

The Paycheck Protection Program, (PPP) intended to keep employees on the payroll, has, in some cases, resulted in workers  asking to be laid off.  That’s ironic, because the coronavirus relief bill was supposed to prevent layoffs. However, the bill passed by Congress last month, temporarily increased unemployment compensation to $600 per week.  Due to the increase, many workers believe it pays better to collect unemployment than to stay working.

The PPP, which depleted its initial funds in just less than two weeks, received a replenishment of funds from the new $484 billion stimulus bill. Businesses can start applying on April 27.

Looking at the situation, it seems as though the government has encouraged both employment and unemployment simultaneously. All while using tax dollars to pursue both of these goals which run in contradiction to one another.

“We basically have this situation where it would be a logical choice for a lot of people to be unemployed,” said Sky Marietta, who opened a coffee shop last year in Kentucky. Even though she had customers, Marietta recently decided to close shop.

“The very people we hired have now asked us to be laid off,” said Marietta. “Not because they did not like their jobs or because they did not want to work, but because it would cost them literally hundreds of dollars per week to be employed.”

With the government offering $600 per week on top of unemployment benefits, she feels her employees could make more staying home. Couple that with the limited risk of catching the coronavirus while at or commuting to work and it seems logical.

Lawmakers cited this unintended consequence of the relief bill when it was being drafted. They noted that $600 a week amounts to $15 an hour, more than twice the minimum wage. That’s in addition to state unemployment benefits, which dramatically varies from a maximum of $235 per week in Mississippi to $795 per week in Massachusetts.

Studies have found that generous unemployment benefits increase unemployment rates, and cutting unemployment compensation reduces unemployment rates. One example is from a January 2015 National Bureau of Economic Research study. It found that cutting unemployment benefits caused most of America’s job growth over the preceding year. Cuts caused just about all of 2014’s employment growth, as seen by the immediate reversal in the relative employment growth trend of high benefit states and border counties in December 2013, just the time when the benefit duration time was cut.