US

Jobs and Unemployment Insurance

Despite the latest GDP figures showing that the US economy had contracted nearly 10% in the second quarter and with unemployment insurance claim numbers continuing to rise, there is still no resolution in Washington on whether the enhanced federal benefits for the jobless set to expire today (31 July) will be extended in some form.

We recently invited our panel to express their views on the possible trade-off between work incentives and the income support provided by the unemployment insurance supplements, whether the top-ups should be reduced or ended, and how the economic and public health conditions in each state might determine the level of federal UI contributions.

We asked the experts whether they agreed or disagreed with the following statements, and, if so, how strongly and with what degree of confidence:

a) Employment growth is currently constrained more by firms’ lack of interest in hiring than people’s willingness to work at prevailing wages.

b) Reducing supplemental levels of unemployment benefits so that no workers receive more than a 100% replacement rate would be a more effective way to balance incentives and income support than simply stopping the supplement at the end of this month.

c) A well-designed unemployment insurance system would tie federal contributions to states on the basis of each state’s economic and public health conditions.

Of our 43 US experts, 38 participated in this survey and the balance of opinion on the three statements is summarized below. More details on the experts’ views come through in the short comments that they are able to make when they participate in the survey.

Labor demand and supply

On the first statement about current constraints on employment growth, a majority of the panel agreed that it is more an issue of labor demand than labor supply. Weighted by each expert’s confidence in their response, 29% of the panel strongly agree, 55% agree, 16% are uncertain, and none disagree.

Among the comments by those who agree, Anil Kashyap at Chicago says that: ‘Especially once the unemployment top-up rolls off, with lockdowns resuming, businesses will remain cautious and consumers reluctant too.’ Barry Eichengreen at Berkeley adds: ‘There is also some understandable reluctance to work (at any wages) owing to safety concerns. Still, I agree.’

Panelists who say that they are uncertain see a role for both demand and supply. Caroline Hoxby at Stanford comments: ‘These two phenomena not mutually exclusive: Employers can have little demand for labor and workers can be unwilling to work at prevailing wages.’ Robert Shimer at Chicago notes: ‘Both matter. Job openings have only fallen modestly and are at more than double their 2009 levels.’ And Robert Hall at Stanford warns: ‘The big issue currently is the high volume of workers who are not working now but expect to be recalled to their existing jobs.’

Pete Klenow at Stanford, who strongly agrees with the statement, points to an April study of data on job vacancies and UI claims, which found that nearly all industries and occupations saw contraction in postings and spikes in UI claims, regardless of whether they are deemed essential and whether they have work-from-home capability.

Balancing work incentives and income support

On the second statement about reducing supplemental levels of unemployment benefits so that no workers receive more than a 100% replacement rate, there is strong majority in agreement. Again weighted by each expert’s confidence in their response, 40% of the panel strongly agree, 54% agree; 6% are uncertain, and none disagree.

Among the comments, Robert Shimer states: ‘There is no reason for replacement rates above 100%. Optimal level is unclear, but probably higher than in normal times due to disease risk. Caroline Hoxby emphasizes that: ‘Since there are costs associated with employment (work clothes, meals outside home, commuting) even 100% replacement rate would discourage work.’ And Bengt Holmstrom at MIT suggests: ‘UI creates allocational distortions, but no reason to stop it entirely. Go down to 60% to strike a compromise.’

Others are more wary about a big reduction. Richard Schmalensee at MIT replies: ‘More efficient, of course, but also harder to get right in a hurry.’ Larry Samuelson at Yale concurs: ‘Bringing replacement rates below 100% would help incentives, but the economy is too fragile for an abrupt end.’ And Barry Eichengreen, who says that is he uncertain, remarks: ‘Would strengthen incentive to work for some but remove adequate income support for some. So there are trade-offs.’

Joseph Altonji at Yale, who notes that ‘Labor demand is weak, so insurance is needed’, provides links to a co-authored study of his, which finds no evidence that more generous benefits disincentivized work either at the onset of the benefits extensions or as firms looked to return to business over time. He also references summaries of two Brookings Papers on the US labor market during the pandemic, while Pete Klenow reminds us of the study of UI replacement rates during the pandemic that finds a median rate of 134% for UI benefits under the CARES Act.

Unemployment insurance linked to states’ economic and public health conditions

On the third statement about linking federal UI contributions to each state’s economic and public health conditions, there is another majority in agreement. Weighted by each expert’s confidence in their response, 21% of the panel strongly agree, 60% agree; 20% are uncertain, and none disagree.

Among those who agree, Anil Kashyap argues that: ‘The current system that uses the “special” tailoring of saying everywhere is the same – even a poor rule would beat that.’ Richard Schmalensee responds: ‘We also need unrestricted aid to states based on their conditions – despite the waste this would entail.’ And Robert Shimer says: ‘I strongly agree with the connection to public health conditions. The argument for extending benefits in recessions is weaker.’

Others mention the potential impact on the incentives for states. Daron Acemoglu at MIT points out: ‘One might have to worry about state moral hazard, but in the current environment, this is not the first order concern.’ Bengt Holmstrom adds: ‘One concern is moral hazard. In Covid situation, very small. In general, bigger.’ And Caroline Hoxby, who responds that she is uncertain, comments: ‘Would agree if could identify EXOGENOUS part of states’ conditions. Should not give states incentives, though, to be irresponsible.’

Among the other panelists who are uncertain, Michael Greenstone at Chicago says: ‘Implementing public health component would need some careful thought… unclear that it would be an improvement.’ Robert Hall states: ‘There’s no particular reason for both levels of government to be involved.’ And Kenneth Judd at Stanford concludes: ‘Let’s not make the UI system too complicated. The purpose is to help people get through unemployment. Let’s focus on that.’

All comments made by the experts are in the full survey results.

Romesh Vaitilingam
@econromesh
July 2020

 

Question A:

Employment growth is currently constrained more by firms' lack of interest in hiring than people’s willingness to work at prevailing wages.

Responses weighted by each expert's confidence

Question B:

Reducing supplemental levels of unemployment benefits so that no workers receive more than a 100% replacement rate would be a more effective way to balance incentives and income support than simply stopping the supplement at the end of this month.

Responses weighted by each expert's confidence

Question C:

A well-designed unemployment insurance system would tie federal contributions to states on the basis of each state’s economic and public health conditions.

Responses weighted by each expert's confidence

Question A Participant Responses

Participant University Vote Confidence Bio/Vote History
Acemoglu
Daron Acemoglu
MIT
Agree
4
Bio/Vote History
Altonji
Joseph Altonji
Yale
Strongly Agree
8
Bio/Vote History
Auerbach
Alan Auerbach
Berkeley
Agree
5
Bio/Vote History
Autor
David Autor
MIT
Agree
6
Bio/Vote History
Baicker
Katherine Baicker
University of Chicago
Uncertain
3
Bio/Vote History
Banerjee
Abhijit Banerjee
MIT Did Not Answer Bio/Vote History
Bertrand
Marianne Bertrand
Chicago
Agree
6
Bio/Vote History
Brunnermeier
Markus Brunnermeier
Princeton
Agree
8
Bio/Vote History
Chetty
Raj Chetty
Harvard
Strongly Agree
9
Bio/Vote History
Chevalier
Judith Chevalier
Yale
Agree
4
Bio/Vote History
Cutler
David Cutler
Harvard
Agree
5
Bio/Vote History
Deaton
Angus Deaton
Princeton
Agree
8
Bio/Vote History
Duffie
Darrell Duffie
Stanford
Agree
3
Bio/Vote History
Yes, very likely so, although there are both supply and demand effects. Consider the level of UI benefits raised in your next question.
Edlin
Aaron Edlin
Berkeley
Uncertain
3
Bio/Vote History
Eichengreen
Barry Eichengreen
Berkeley
Agree
5
Bio/Vote History
There is also some understandable reluctance to work (at any wages) owing to safety concerns. Still, I agree.
Einav
Liran Einav
Stanford
Agree
1
Bio/Vote History
Fair
Ray Fair
Yale
Agree
5
Bio/Vote History
Finkelstein
Amy Finkelstein
MIT
Agree
2
Bio/Vote History
Goldberg
Pinelopi Goldberg
Yale Did Not Answer Bio/Vote History
Goolsbee
Austan Goolsbee
Chicago
Strongly Agree
10
Bio/Vote History
Greenstone
Michael Greenstone
University of Chicago
Agree
5
Bio/Vote History
Hall
Robert Hall
Stanford
Uncertain
7
Bio/Vote History
The big issue currently is the high volume of workers who are not working now but expect to be recalled to their existing jobs.
Hart
Oliver Hart
Harvard
Agree
6
Bio/Vote History
Holmström
Bengt Holmström
MIT
Strongly Agree
6
Bio/Vote History
Hoxby
Caroline Hoxby
Stanford
Uncertain
10
Bio/Vote History
These 2 phenomena not mutually exclusive: Employers can have little demand for labor & workers can be unwilling to work at prevailing wages.
Hoynes
Hilary Hoynes
Berkeley
Strongly Agree
8
Bio/Vote History
Judd
Kenneth Judd
Stanford
Agree
7
Bio/Vote History
Kaplan
Steven Kaplan
Chicago Booth
Uncertain
3
Bio/Vote History
Kashyap
Anil Kashyap
Chicago Booth
Agree
3
Bio/Vote History
especially once the unemployment top off rolls off, with lockdowns resuming businesses will remain cautious and consumers reluctant too
Klenow
Pete Klenow
Stanford
Strongly Agree
4
Bio/Vote History
Levin
Jonathan Levin
Stanford
Agree
4
Bio/Vote History
Maskin
Eric Maskin
Harvard Did Not Answer Bio/Vote History
Nordhaus
William Nordhaus
Yale
Strongly Agree
8
Bio/Vote History
Obstfeld
Maurice Obstfeld
Berkeley
Strongly Agree
6
Bio/Vote History
Saez
Emmanuel Saez
Berkeley
Agree
7
Bio/Vote History
Samuelson
Larry Samuelson
Yale
Agree
8
Bio/Vote History
Scheinkman
José Scheinkman
Columbia University
Agree
5
Bio/Vote History
Schmalensee
Richard Schmalensee
MIT
Agree
6
Bio/Vote History
Shapiro
Carl Shapiro
Berkeley
Uncertain
3
Bio/Vote History
Shimer
Robert Shimer
University of Chicago
Uncertain
5
Bio/Vote History
Both matter. Job openings have only fallen modestly and are at more than double their 2009 levels
-see background information here
Stock
James Stock
Harvard Did Not Answer Bio/Vote History
Thaler
Richard Thaler
Chicago Booth
Agree
1
Bio/Vote History
More of a guess than an opinion.
Udry
Christopher Udry
Northwestern Did Not Answer Bio/Vote History

Question B Participant Responses

Participant University Vote Confidence Bio/Vote History
Acemoglu
Daron Acemoglu
MIT
Strongly Agree
4
Bio/Vote History
Altonji
Joseph Altonji
Yale
Strongly Agree
8
Bio/Vote History
Labor demand is weak, so insurance is needed.
-see background information here
-see background information here
Auerbach
Alan Auerbach
Berkeley
Agree
5
Bio/Vote History
Autor
David Autor
MIT
Strongly Agree
10
Bio/Vote History
Baicker
Katherine Baicker
University of Chicago
Strongly Agree
3
Bio/Vote History
Banerjee
Abhijit Banerjee
MIT Did Not Answer Bio/Vote History
Bertrand
Marianne Bertrand
Chicago
Agree
6
Bio/Vote History
Brunnermeier
Markus Brunnermeier
Princeton
Strongly Agree
9
Bio/Vote History
Chetty
Raj Chetty
Harvard
Strongly Agree
10
Bio/Vote History
Chevalier
Judith Chevalier
Yale
Agree
8
Bio/Vote History
Cutler
David Cutler
Harvard
Strongly Agree
5
Bio/Vote History
Deaton
Angus Deaton
Princeton
Agree
7
Bio/Vote History
Duffie
Darrell Duffie
Stanford
Strongly Agree
2
Bio/Vote History
The incentive effects seem obvious.
Edlin
Aaron Edlin
Berkeley
Agree
5
Bio/Vote History
Eichengreen
Barry Eichengreen
Berkeley
Uncertain
5
Bio/Vote History
Would strengthen incentive to work for some but remove adequate income support for some. So there are tradeoffs.
Einav
Liran Einav
Stanford
Uncertain
1
Bio/Vote History
Fair
Ray Fair
Yale
Agree
5
Bio/Vote History
Finkelstein
Amy Finkelstein
MIT
Strongly Agree
6
Bio/Vote History
Goldberg
Pinelopi Goldberg
Yale Did Not Answer Bio/Vote History
Goolsbee
Austan Goolsbee
Chicago
Strongly Agree
10
Bio/Vote History
Greenstone
Michael Greenstone
University of Chicago
Strongly Agree
8
Bio/Vote History
Hall
Robert Hall
Stanford
Agree
7
Bio/Vote History
Sure, but a comprehensive program involving employer incentives would probably be better
Hart
Oliver Hart
Harvard
Agree
7
Bio/Vote History
Holmström
Bengt Holmström
MIT
Agree
6
Bio/Vote History
UI creates allocational distortions, but no reason to stop it entirely. Go down to 60% to strike a compromise.
Hoxby
Caroline Hoxby
Stanford
Agree
10
Bio/Vote History
Since there are costs assoc. with employment (work clothes, meals outside home, commuting) even 100% replacement rate would discourage work.
Hoynes
Hilary Hoynes
Berkeley
Strongly Agree
8
Bio/Vote History
Judd
Kenneth Judd
Stanford
Agree
7
Bio/Vote History
Kaplan
Steven Kaplan
Chicago Booth
Agree
5
Bio/Vote History
Kashyap
Anil Kashyap
Chicago Booth
Agree
3
Bio/Vote History
Klenow
Pete Klenow
Stanford
Strongly Agree
4
Bio/Vote History
Levin
Jonathan Levin
Stanford
Uncertain
4
Bio/Vote History
Once firms are ready to hire, yes, but not if states reverse re-openings. (Panelist misread question 2; preferred answer "strongly agree")
Maskin
Eric Maskin
Harvard Did Not Answer Bio/Vote History
Nordhaus
William Nordhaus
Yale
Strongly Agree
7
Bio/Vote History
Obstfeld
Maurice Obstfeld
Berkeley
Uncertain
4
Bio/Vote History
Depends what you mean by "effective." If "effective" means people can't pay rent, then ....
Saez
Emmanuel Saez
Berkeley
Agree
8
Bio/Vote History
Samuelson
Larry Samuelson
Yale
Agree
8
Bio/Vote History
Bringing replacement rates below 100% would help incentives, but the economy is too fragile for an abrupt end.
Scheinkman
José Scheinkman
Columbia University
Agree
6
Bio/Vote History
Schmalensee
Richard Schmalensee
MIT
Agree
7
Bio/Vote History
More efficient, of course, but also harder to get right in a hurry.
Shapiro
Carl Shapiro
Berkeley
Agree
8
Bio/Vote History
Shimer
Robert Shimer
University of Chicago
Agree
7
Bio/Vote History
There is no reason for replacement rates above 100%. Optimal level is unclear, but probably higher than in normal times due to disease risk.
Stock
James Stock
Harvard Did Not Answer Bio/Vote History
Thaler
Richard Thaler
Chicago Booth
Agree
1
Bio/Vote History
Both proposals are lousy but something is better than nothing.
Udry
Christopher Udry
Northwestern Did Not Answer Bio/Vote History

Question C Participant Responses

Participant University Vote Confidence Bio/Vote History
Acemoglu
Daron Acemoglu
MIT
Agree
4
Bio/Vote History
One might have to worry about state moral hazard, but in the current environment, this is not the first order concern.
Altonji
Joseph Altonji
Yale
Agree
8
Bio/Vote History
Auerbach
Alan Auerbach
Berkeley
Agree
5
Bio/Vote History
Autor
David Autor
MIT
Agree
8
Bio/Vote History
Baicker
Katherine Baicker
University of Chicago
Agree
3
Bio/Vote History
Banerjee
Abhijit Banerjee
MIT Did Not Answer Bio/Vote History
Bertrand
Marianne Bertrand
Chicago
Strongly Agree
7
Bio/Vote History
Brunnermeier
Markus Brunnermeier
Princeton
Uncertain
5
Bio/Vote History
Chetty
Raj Chetty
Harvard
Strongly Agree
10
Bio/Vote History
Chevalier
Judith Chevalier
Yale
Agree
2
Bio/Vote History
Cutler
David Cutler
Harvard
Strongly Agree
5
Bio/Vote History
Deaton
Angus Deaton
Princeton
Agree
7
Bio/Vote History
Duffie
Darrell Duffie
Stanford
Agree
2
Bio/Vote History
Edlin
Aaron Edlin
Berkeley
Agree
7
Bio/Vote History
Eichengreen
Barry Eichengreen
Berkeley
Agree
5
Bio/Vote History
Einav
Liran Einav
Stanford
Agree
1
Bio/Vote History
Fair
Ray Fair
Yale
Agree
5
Bio/Vote History
Finkelstein
Amy Finkelstein
MIT
Strongly Agree
3
Bio/Vote History
Goldberg
Pinelopi Goldberg
Yale Did Not Answer Bio/Vote History
Goolsbee
Austan Goolsbee
Chicago
Uncertain
1
Bio/Vote History
Greenstone
Michael Greenstone
University of Chicago
Uncertain
4
Bio/Vote History
implementing public health component would need some careful thought.......unclear that it would be an improvement
Hall
Robert Hall
Stanford
Uncertain
6
Bio/Vote History
There's no particular reason for both levels of government to be involved
Hart
Oliver Hart
Harvard
Agree
6
Bio/Vote History
Holmström
Bengt Holmström
MIT
Agree
4
Bio/Vote History
One concern is moral hazard. In Covid situation very small. In general bigger.
Hoxby
Caroline Hoxby
Stanford
Uncertain
8
Bio/Vote History
Would agree if could identify EXOGENOUS part of states' conditions. Should not give states incentives, though, to be irresponsible.
Hoynes
Hilary Hoynes
Berkeley
Agree
8
Bio/Vote History
Judd
Kenneth Judd
Stanford
Uncertain
6
Bio/Vote History
Let's not make the UI system too complicated. The purpose is to help people get through unemployment. Let's focus on that.
Kaplan
Steven Kaplan
Chicago Booth
Agree
5
Bio/Vote History
Kashyap
Anil Kashyap
Chicago Booth
Strongly Agree
7
Bio/Vote History
the current system that uses the "special" tailoring of saying everywhere is the same -- even a poor rule would beat that
Klenow
Pete Klenow
Stanford
Agree
5
Bio/Vote History
Levin
Jonathan Levin
Stanford
Uncertain
3
Bio/Vote History
Agree in theory, but we don't even have consistent public health data right now.
Maskin
Eric Maskin
Harvard Did Not Answer Bio/Vote History
Nordhaus
William Nordhaus
Yale
Uncertain
1
Bio/Vote History
Obstfeld
Maurice Obstfeld
Berkeley
Agree
6
Bio/Vote History
Saez
Emmanuel Saez
Berkeley
Agree
7
Bio/Vote History
Samuelson
Larry Samuelson
Yale
Agree
8
Bio/Vote History
Scheinkman
José Scheinkman
Columbia University
Uncertain
4
Bio/Vote History
Schmalensee
Richard Schmalensee
MIT
Agree
7
Bio/Vote History
We also need unrestricted aid to states based on their conditions -- despite the waste this would entail.
Shapiro
Carl Shapiro
Berkeley
Strongly Agree
9
Bio/Vote History
Shimer
Robert Shimer
University of Chicago
Agree
7
Bio/Vote History
I strongly agree with the connection to public health conditions. The argument for extending benefits in recessions is weaker.
Stock
James Stock
Harvard Did Not Answer Bio/Vote History
Thaler
Richard Thaler
Chicago Booth
Uncertain
1
Bio/Vote History
Is this "in theory" or "in practice". Seems wildly impractical given the IT systems in place. Will the health data come by fax?
Udry
Christopher Udry
Northwestern Did Not Answer Bio/Vote History