MNI POLICY: Jobless Benefits Keep Workers Away -Fed Paper

More generous unemployment benefits created by the USD2 trillion fiscal aid package in March should elevate U.S. unemployment by an average of nearly 4 percentage points through the end of the year, researchers from the Atlanta and Kansas City Fed banks said in a working paper posted Friday.

Enhanced jobless benefits - primarily a weekly USD600 additive to regular state benefits - "create work disincentives and lead to higher unemployment, but they also reduce infection and save lives," wrote Lei Fang, Jun Nie and Zoe Xie. The extra pay and expanded eligibility under the CARES Act accounted for about 90% of the impact while a 13-week extension to state benefits has "played a much smaller role" in raising the unemployment rate, the researchers said.

Still, more generous unemployment insurance policies may be necessary to protect workers during the Covid-19 crisis and should reduce coronavirus-related deaths by 4.7% through the end of the year, they said.

The paper counters a Yale University report published earlier this month that found no evidence of work disincentives stemming from more generous benefit increases.

Talks over the extension of these enhanced benefits, which expire Friday, have thus far stalled. A Republican-led proposal this week would cut added weekly benefits to USD200, which would still increase unemployment by around 3 percentage points between August and December, according to the paper. That would also reduce Covid-19 deaths by 2.4% this year.

State shutdowns have amplified the effects of unemployment insurance, the researchers say, and if lockdown policies were not in place, increased benefit generosity would only raise unemployment by an average of 2.3 percentage points.