Fix the post-Covid economy by supporting the unemployed

Joelle Gamble, principal at Omidyar Network
Benedict Evans / New North Press / WIRED

No one should have to choose between staying healthy and going to work. Yet, this summer, at the height of a pandemic that had claimed more than 150,000 American lives and paralysed the US economy, Congress was debating whether to extend expanded unemployment insurance (UI) benefits for millions who had lost their jobs. Republicans claimed that $600 in additional weekly payments, which is more than some workers were earning, deterred people from seeking work. Putting aside that this expanded UI programme was only implemented because of a pandemic – and millions of Americans cannot and should not go back to work until it is under control – this argument is based on a flawed assumption: that higher wages are the primary incentive for people to work.
Even outside of a pandemic, unemployment benefits help the economy. Each dollar of UI raises aggregate economic activity by $1.10, meaning each dollar of UI gets spent, and that spending supports an additional ten per cent increase in economic activity that would not exist without the dollar of UI. That spending keeps the economy growing and keeps millions of other Americans employed, especially since retail supports one in four American jobs.


This effect is critical right now, with the US facing both supply and demand pressures on the economy. To keep Covid-19 from spreading, businesses had to close. As a result, people were laid off and consumer spending plummeted. Families have been using their UI for rent and groceries, keeping consumer demand from falling through the floor.
Republican lawmakers argue that if Congress continues to offer generous UI benefits, firms would be forced to offer wages that are even higher than these benefits to entice people to return to work. The empirical picture is not so simple. If increasing unemployment benefits truly disincentivises work, you would expect wages to go up in order to attract workers. But new research casts doubt on the claim that UI has a significant effect on wages. Other studies have shown that when workers do find jobs, UI has little influence on their ability to bargain for wages. There is some evidence that the duration of UI can affect how long someone remains unemployed. But a recent study found that workers collecting unemployment benefits search twice as intensely for a job as those who have lost their benefits. These workers are using the peace of mind UI provides to find better jobs, not stay at home. That’s a good thing.
What really motivates people to work is a job that gives them dignity – a workplace where their contributions and their voice matter. The Omidyar Network teamed up with Gallup and other organisations to survey over 6,000 workers to find out about the quality of their jobs. And we found that while people certainly care about pay, it is not the only important factor in their work life.
Other countries are modeling what a recovery that moves beyond dated economic assumptions can look like. As the pandemic got worse, Denmark effectively froze its economy, paying companies to send employees home but keep them on payroll. They’ve avoided multiple rounds of layoffs – and maintained workplace quality by keeping companies connected to their employees. As a result, Denmark has reopened and is back to normal employment. Germany, meanwhile, worked with firms and employees to prevent mass layoffs by subsidising workers’ pay. As a result of this forethought, both Denmark and Germany appear poised to emerge from the economic crisis in a much stronger position than the US.


US lawmakers should continue to provide ample benefits for workers hurt by this pandemic, while also focusing on both improving the quality of workplaces and making sure that workers have a voice within them. That means supporting work councils, sectoral bargaining and good old-fashioned union organising, which improve wages and benefits for employees at scale and give workers a seat at the table when it comes to setting the health and safety standards that are designed to protect them.
If the US is ever to achieve the faster economic recovery that other advanced nations are enjoying, lawmakers must recognise that for most Americans, work is about so much more than a paycheck. Understanding this will allow us to avoid outdated policies, hasten the recovery, and build a better labour market once this crisis finally passes.
Joelle Gamble is a principal with the Reimagining Capitalism team at Omidyar Network
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