Returning to work and unemployment benefits

Diane Lim writes an analysis of the economic theory of the marginal incentives people have to go back to work at her blog EconomistMom. Worth a visit:

Quote: “Get ready to see lots of press on the ending of pandemic unemployment benefits in some parts of the country and what it shows about how much those benefits are to blame for keeping people from getting back to work. See, for example, this Wall Street Journal story which offers this analysis:

The number of workers paid benefits through regular state programs fell 13.8% by the week ended June 12 from mid-May—when many governors announced changes—in states saying that benefits would end in June, according to an analysis by Jefferies LLC economists. That compares with a 10% decline in states ending benefits in July, and a 5.7% decrease in states ending benefits in September.

Eric Morath and Joe Barrett, “Americans Are Leaving Unemployment Rolls More Quickly in States Cutting Off Benefits,” Wall Street Journal, 6/27/21

But the dollar value of benefits paid and the number of people claiming unemployment benefits of course will decline in places that are ending benefits. This is mostly a direct effect on government and household budget constraints, rather than the (indirect) effects of the policy change on the marginal incentives people have to go back to work–the economist’s theory being that what matters is (simply) the generosity of unemployment benefits one can receive by remaining unemployed relative to the level of wages they can earn by going to work for their “highest bidder.”

The current mismatch between the demand for leisure/hospitality workers and the available and willing supply of workers to these businesses is far more complicated than the marginal incentives story economists like to tell. In my first piece for Avison Young, I focus on the apparent surge in consumer demand for restaurants vs. the apparent lack of workers looking for work across certain localities, based on Google search data. Seeing which parts of the country have the most severe labor shortages, and contemplating the “why,” helps us to realize there are many harder-to-solve factors constraining labor supply right now:”Unquote

(Sorry about the editing…I couldn’t get the editor to work quite right..)