Disincentive crisis: Many states pay families unemployment benefits larger than job salaries

Families often can "earn as much or more income from receiving government assistance" as they can working, academics claim.

Published: December 23, 2022 2:31pm

Updated: December 26, 2022 11:16pm

Amid an ongoing labor crisis, with businesses across the country continually struggling to fill open worker slots, two economists say part of the problem may stem from roughly a quarter of all U.S. states paying citizens sky-high unemployment benefits that sharply disincentivize working. 

The report, published this month by the Committee to Unleash Prosperity, points to a rash of state-level policies that offer generous payouts for workers who are currently unemployed. 

The writers — University of Chicago economics Professor Casey Mulligan and Heritage Foundation economics research fellow EJ Antoni — argue in the paper that in 14 states, "unemployment benefits and [Affordable Care Act] subsidies are the equivalent to a head of household earning $80,000 in salary, plus health insurance benefits."

In three states — Washington, Massachusetts and New Jersey — the researchers found that unemployment benefits could top $100,000, with Washington offering $122,000 in payouts. 

Speaking to Just the News, Mulligan noted that safety net and welfare programs functioned well in years past without disincentivizing real employment.

"For MANY years up to and including 2007, we had an extensive safety net without mass suffering etc. while encouraging work better than we do today," he argued. "So a simple recommendation would be to roll back the federal programs to 2007, before the Obama and Biden administrations got a hold of them."

In the wake of the coronavirus crisis,"the U.S. is 'missing' more than three million workers of working age that could be working and were working prior to Covid but are not today," according to the Mulligan-Antoni paper.

"There are many factors that could help explain this disappearance of workers from the work force," the authors argue, "including continuing fears of Covid, early retirement, 'long Covid,' the decision by many not to ever return to work and instead retire early, among others. But this study shows that one factor contributing to the dearth of workers is the generous benefits paid to families without workers. 

"If states reduced unemployment insurance maximums and provided more targeted benefits, that would reduce unemployment and the duration for which people remain unemployed."

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