On the surface, that argument has some merit.
For critics of the pandemic-era jobless aid, the connection here is obvious: Benefits are making life too comfortable for the unemployed to go out and find a job.
But it’s not that simple.
In this strange pandemic environment, we shouldn’t be screaming in agony about any particular jobs report. We should, however, be jumping for joy when GDP is growing strong, because that’s the tide that lifts all boats. And in this case, the extra unemployment insurance is doing its job.
Reasons to stay home
“Our estimates suggest that those who previously made less than $32,000 would be better off in the near term to collect UI benefits than work,” wrote BofA economists Michelle Meyer, Joseph Song and Anna Zhou in late April.
“The more generous unemployment insurance would benefit workers in low-wage occupations such as food preparation and services and personal care services-all sectors where employers have flagged difficulties in hiring and retaining workers,” they said.
But there’s a problem with that argument. This disincentive should evaporate in September, when the government’s aid boost expires.
And many people really need those benefits because they don’t have the choice about whether to return to work.
Making sense of the jobs report
Another problem with blaming UI benefits for the weak jobs report: It’s just one data point, not a trend. And diving deeper into the numbers doesn’t support the argument that low-income people are waiting on the sidelines.
The government’s tally of jobs added to the economy underperformed economists expectations by more than 700,000 jobs last month. But the leisure and hospitality industry added 331,000 positions, which brings its pandemic-era job growth to 5.4 million. And yet, employment in the industry, which was hit the hardest at the start of the pandemic, is still down 2.8 million compared with February 2020.
More people also re-entered the workforce looking for new jobs, which is a good sign for the recovery. That’s why the unemployment rate inched up 0.1 percentage points to 6.1% last month: the more workers are actively looking for employment, the higher the jobless rate.
Even so, last month’s disappointing report definitely dents the idea that the economy is booming, said Krugman, but that doesn’t mean it’s time to panic. “I think we wait and see to figure out what is really going on here.”
A changed labor market
One thing is for sure. The pandemic will leave a lasting mark on America’s labor market.
The nation is still down more than 8 million jobs and some of them might never come back. The pizza shop that closed isn’t rehiring. The small brick-and-mortar retail store that shuttered won’t ever need more staffers, either.
For people who lost those kinds of jobs, the enhanced unemployment benefits are a lifeline — and a way to keep participating in the recovery. All spending, no matter how it was funded is helping it chug along. Eventually, the economy will be strong enough to run without help again and economists will turn their attention to other issues, like the nation’s deficit. But for now, the help is still needed.
“The short technical summary is ‘what the hell,'” Krugman said of the report. “That doesn’t match anything that we’re seeing in other data.”
At this point, it’s not even clear how much it really matters. The latest data disappointment might mean nothing in the long-run. After all, one data point doesn’t make a trend. The May jobs report could show the massive uptick in job growth that economists had predicted last month. Plus, the disheartening April figures could be revised as well. It’s going to take some time for the economy to find its new shape.
–Tami Luhby contributed to this report.
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