Economists Think Weak Demand for Labor Is Holding Down Employment

Economists overwhelmingly believe that employment growth is being held down more by weak demand for labor than by the unwillingness of people to accept work due to enhanced unemployment benefits, according to a survey conducted by the Initiative on Global Markets at the University of Chicago Booth School of Business.

Seventy-two percent of the IGM expert panel, made up of senior faculty at the most elite research universities in the United States, either agree or strongly agree with the statement  that “Employment growth is currently constrained more by firms’ lack of interest in hiring than people’s willingness to work at prevailing wages.”

Sixteen percent said they were uncertain. None disagreed.

Some Republican lawmakers have expressed concern that the enhanced unemployment benefits included in the previous CARES legislation could be keeping some Americans out of work. That law included a federal boost of $600 per week to state unemployment benefits, which has meant that many of those who lost their jobs are eligible to receive more on unemployment than they earned while working. That enhancement is due to expire at the end of the month.

Democrats have argued that the additional funds should continue to be paid to the unemployed through the end of the year. The Trump administration itself appears divided on the question, with many saying the enhanced unemployment benefits should be replaced with the payroll tax cut, in effect creating a bonus for workers instead of the unemployment.

Eighty percent of the the IGM panel said that reducing the enhancement so that no workers receive more than they were paid on the job would be better than stopping the program altogether. But that might not be possible given the aging technology states use to assess claims for unemployment benefits. Many states have said their systems are already stressed by the record high number of claims that have been filed.

When weighted by each expert’s confidence, the results are even starker. Eighty-four percent agree or strongly agree that the problem is weak demand rather than reluctance to return to work.  Ninety-four percent favor capping the benefits at 100 percent of wages rather than eliminating them.

Sixty-five percent of the unweighted panel say federal support for unemployment should be tied to a state’s economic and public health conditions. That rises to 81 percent weighted for confidence.