Harvard University economist Jason Furman suggested in a new study that the American Rescue Plan’s expansion of unemployment benefits could be harming the United States’ post-pandemic economic recovery.
Furman’s study argues that a lack of childcare options for working parents of young children is not causing the country’s poor jobs numbers. Instead, he writes in the study, “the continued concern about the threat of getting COVID-19 at work or expanded unemployment insurance benefits and eligibility” are the key “factors responsible for the slow employment recovery and depressed labor supply.”
The study was co-authored with Harvard University professor Wilson Powell and University of Maryland professor Melissa Kearney. Furman previously served as the chairman of President Barack Obama’s Council of Economic Advisers.
Are parents of young kids dragging down employment?
I was surprised by the answer @jasonfurman, @kearney_melissa, & Wilson Powell found when they looked at the data. That is good, because it means I learned a lot from their paper: https://t.co/s2TsuLaewO pic.twitter.com/hec3705VTu
— Michael R. Strain (@MichaelRStrain) May 17, 2021
The study provides new evidence for Republicans and conservative economists, who argue that the ARP’s unemployment benefits expansion was a key contributor to April’s poor jobs numbers. At least 22 states with Republican governors have rejected the expansion.
“It’s hurting our productivity,” Georgia Gov. Brian Kemp said of the expansion. “Every small business owner, and the workers that are currently working, they need more people.”
“The $300 federal unemployment bonus drives unemployment benefits to $687 per week, which is approximately $20 per hour, and more than nearly half of what unemployed workers were making in their previous jobs,” Manhattan Institute economist Brian Riedl told the Daily Caller. “So essentially, millions of workers are making more on unemployment benefits than they would be making at their jobs.”
The study could provide headaches for Democrats and some Republicans who argue that cost is the main reason that young people are deferring family formation and then staying out of the workforce. Biden’s American Families Plan would expand the Child Tax Credit, create universal pre-kindergarten, expand Pell grants, and expand Affordable Care Act tax credits.
Democratic Florida Rep. Lois Frankel slammed the findings in an interview with Politico. “This report is contrary to common sense and real life experience,” she said. “The child care system was already teetering before the pandemic. It was too costly and in many places not available, keeping parents who want and need to work at home as caregivers.”
Riedl panned increased spending proposals as likely harmful over the long-term. “Overly generous subsidies can often discourage work. But realistically, policies such as Child Tax Credit expansion are so popular with voters that I think that will override a lot of Republican policy concerns in the long run. The Child Tax Credit is a budget-busting middle class giveaway that is also the key to re-election.”
Riedl also emphasized the potential for mixed results. “Giving families extra money will somewhat slow work rates a little bit, especially for second parents. It will decrease poverty somewhat.”
“There is a large debate right now about whether or not the government discouraging parents from working is actually a bad thing after all,” he continued. “A lot of the same people who say, ‘we need a child credit to increase birth rates because we need more workers,’ are ignoring the fact that some of the parents may work less, which will offset some of the employment effect.”
