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Are federal aid to blame for the fact that millions in the US are still unemployed?

Stimulus check. Getty Creative

It’s a paradox: There are officially 16.9 million Americans out of the workforce, but business owners complain they can’t find employees.

Opponents of Joe Biden’s generous government aid packages argue that the benefits – unemployment and stimulus payments – are so generous that the unemployed don’t want to go back to work. In fact, the pace of job growth reached 266,000 in April, well below what analysts expected.

Research by Bank of America supports the argument that too much unemployment assistance prevents people from looking for work, but only if those workers previously earned less than $ 32,000 per year, which is less than half the national median income. In other words, that argument only explains part of the problem.

“The more generous unemployment insurance would benefit workers in low-wage occupations such as food preparation and personal care services and services, all sectors where employers have reported difficulties hiring and retaining workers,” the economists wrote. from bank Michelle Meyer, Joseph Song and Anna Zhou in late April.

At the same time, the financial institution predicted that 25% of 5 million Americans will return to work when federal benefits expire.

Another study had a different result.

No relationship between aid and return to work

Economist Julia I. Lane, a professor at New York University, has been tracking the records of jobless applicants in Illinois to assess the effect of the stimulus. The available data provides a wealth of information on millions of people, such as past employment history and earnings before and after unemployment.

“For each individual, we calculate their earnings on the benefits, relative to the earnings they had before receiving the benefits,” Lane explained to the online publication Mic. The researchers then looked at how quickly people entered the workforce compared to stimulus payments and the ratio of these to previous earnings.

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Restaurants are one of the businesses that has the hardest time getting employees.  (Photo: AP Photo / Karim Kadim)Restaurants are one of the businesses that has the hardest time getting employees.  (Photo: AP Photo / Karim Kadim)

Restaurants are one of the businesses that have the hardest time getting employees. (Photo: AP Photo / Karim Kadim)

If people stayed home because the stimulus paid them more money than their job, then people who earn more from the stimulus than from wages would be expected to stay out of work longer. But that was not the case. Lane and her team found no correlation between those who remained out of work and those whose stimulus payments were closest to their wages.

“Individual companies can have trouble hiring people,” Lane admits. But the idea that this is because the stimulus payments and benefits are too high “is not borne out when you look at data from literally millions of people over time.”

The Republican ‘theory’

Due to the debate surrounding the impact of federal aid on the pandemic, 11 states – all with a Republican majority – announced that they would end those programs on July 3, before they officially expire in September. These states include Montana, South Carolina, Arkansas, Alabama, Mississippi, and North Dakota.

That means that many people who really need those benefits because they don’t have the option to return to work will lose them.

Is getting back to work

Other experts point out that the general tendency is to look for work, not to stay at home. The government’s count of jobs added to the economy beat economists’ expectations by more than 700,000 jobs last month. The leisure and hospitality industry added 331,000 jobs, bringing its job growth in the pandemic era to 5.4 million, but employment in the industry, which was the most affected at the beginning of the pandemic, is 2.8 million lower compared to February 2020.

“We saw big job gains in leisure and hospitality, which is exactly the sector where you would expect people to be more inclined to stay home because of virus risks or unemployment benefits,” said the Princeton economist and Nobel laureate Paul Krugman to CNN.

The reasons that vacancies remain

Some workers consulted by the aforementioned online publication Mic in sectors such as restaurants, pointed out safety reasons for not returning to work. They did not feel secure enough in their positions and that is why they refused to take it again when their companies required it.

Another possible reason factories are having difficulty finding qualified personnel may be that workers are concerned that their jobs will be outsourced abroad or replaced by machines.

The nation has still lost more than 8 million jobs and some of them may never return, particularly with small businesses.

On the other hand, the impact of new trends, such as more online shopping services, has yet to be determined.

Bottom line: it is still too early to study the impact of federal benefits on unemployment. The May jobs report could show the massive pickup in job growth that economists had predicted last month. In addition, the disappointing figures for April could also be revised.

It will take some time for the economy to find its new path.

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