By Jeffry Bartash, MarketWatch
Did generous unemployment benefits discourage many workers from returning to their jobs? A big drop in people seeking or receiving benefits in the past two weeks after the end of a $600 federal stipend hints the answer might be yes.
Initial jobless claims fell to 963,000 in early August, a decline of almost 500,000 from two weeks earlier. New applications had largely been flat at around 1.5 million a week from June to mid-July.
The number of peopled receving benefits, meanwhile, tumbled by 1.5 million in the last two weeks of July to 15.49 million just as the benefit was expiring. That’s the lowest level for these so-called continuing claims since early April.
Some economists say it’s no coincidence new and continuing applications for benefits began to tumble right around the July 31 expiration of the federal stipend.
“This is not rocket science, folks. When you pay people more to sit at home than to go back to work, they sit at home,” said chief economist Stephen Stanley of Amherst Pierpont Securities. “When you don’t, if they are offered a job, they go back to work.”
“This is not rocket science, folks. When you pay people more to sit at home than to go back to work, they sit at home. When you don’t, if they are offered a job, they go back to work.”
-Stephen Stanley, chief economist of Amherst Pierpont Securities
Stanley and other Wall Street /zigman2/quotes/210598065/realtime DJIA -0.36% economists in frequent contact with business people say they’ve repeatedly been told generous benefits made it harder for companies to hire or rehire.
“I hear it all the time from business people,” said Gus Faucher, chief economist at PNC Financial Services. “They tried to recall people and people either implied or outright stated, ‘Why should I return to work if I am making more from unemployment?’”
Yet economists largely in academia and at the Federal Reserve contend the problem is negligible. A handful of studies, including one by Yale, assert the federal stipend has had virtually no impact on whether people go back to work.
Million of people who returned to their jobs in May and June, the study pointed out, did so despite receiving a high level of benefits.
“We find no evidence that high [unemployment insurance] replacement rates drove job losses or slowed rehiring,” the Yale study said .
Mary Daly, president of the San Francisco Federal Reserve, also downplayed the role of the federal stipend on unemployment in a “digital town hall” on Tuesday. While she’s also heard plenty of anecdotes from businesses leaders, she said the number of people refusing to work is probably too low to make much of a difference.
The answer is not an academic exercise or an inside debate among economists with little bearing on public policy. The federal stipend hasn’t been renewed partly because Republicans argued it was keeping workers from returning to their jobs.