How Long Should We Keep Bribing People Not to Work?

Three Republican senators raised an alarm in late March: Congress’s multi-trillion-dollar coronavirus bill would boost unemployment benefits by $600 a week — such a large amount that many people would make more if they were laid off than they would if they continued working.

It turned out there was a stupid, embarrassing backstory behind this provision. States administer unemployment benefits using antiquated computer systems, and they couldn’t process a new benefit formula that was even mildly complicated. If lawmakers wanted to hike unemployment benefits during the worst part of the crisis — a time when government policy was deliberately idling much of the work force — they had to pick a flat amount to add to the existing benefits, and $600 was chosen because it would make the average unemployment benefit equal to the average wage.

Sometimes you have to make the best of a bad situation, and this was the solution that presented itself. But these benefits expire at the end of July, Congress has to decide what comes next, and the bill the Democratic House passed would extend these payments until next January. That is a terrible idea, and the Republican-led Senate needs to figure out something better.

As a new paper from three economists at the University of Chicago demonstrates, the $600 boost fails to help workers in an equitable fashion and creates terrible incentives. It would be a poor fit for our coming circumstances, in which states are reopening and the economy should gradually improve. If, in this next phase, we want to keep the unemployment system a bit more generous than it usually is, we will have to either make the boost smaller or force states to implement a formula that actually makes sense.