An excellent natural economic experiment

We welcome this:

South Carolina and Montana residents will be cut off from federal pandemic unemployment benefits next month, with Republican governors in each state claiming the payments have led to a workforce shortage. Economists say that's not the case.

"Employers are just angry that they are unable to find workers at relatively low wages," Heidi Shierholz, a senior economist and director of policy at the Economic Policy Institute, said in an interview. "The jobs being posted are more stressful, more risky, harder jobs than they were pre-COVID. ... When the job is more stressful, then it should command a higher wage."

These two states will be the first to end participation in the unemployment enhancement programs, as both states are attempting to transition back to pre-pandemic unemployment insurance eligibility and benefits by the end of June.

We disagree with Heidi. The current system whereby normal state unemployment benefits are paid, with few questions, plus the $300 a week Federal upgrade means that somewhere between 25% and 50% of the American labour force earns more by not going to work than by labouring. This clearly and obviously raises the reservation wage - the amount that must be paid in order to get a worker to come to work.

We’re entirely agreed that supporting people during a pandemic inspired lockdown of the economy is a good idea. But we’re also convinced that the political incentive is to continue handing out the cash long after it’s sensible to continue doing so.

However, it’s not so much the ending that we think is such a good thing. It’s that it will end in some places and not in others. The national economy will be subject to much the same influences in every part of it. We’ll have this one policy difference in just these two areas. We’ll thus have the natural experiment to be able to see what the effect of the extended and expanded unemployment benefits actually is.

Which is great, isn’t it? Next time around we’re not going to have to try and pick and choose between two sets of - possibly - ideologically motivated think tankers, we’ll have real world evidence and proof. We’ll be using the evidence to illuminate the issue the next time around but the other lot…..