An overwhelming majority of economists surveyed this month by The Wall Street Journal said the economic benefits of additional jobless benefits to help laid-off workers outweighed concern that the extra payments could deter people from going back to work.
About 82% of economists in the Journal’s survey said they agreed more with the idea that the extra cash boosted the economy than the idea that it held back the labor market’s recovery. Many of them said the benefits should be extended to support the recovery.
President Trump on Saturday signed an executive action to provide an extra $300 a week in federally funded jobless benefits, a short-term solution to keep some of the money flowing while Congress and the White House continue to negotiate over a larger stimulus package.
Republicans and Democrats have been at odds over the size of the extra benefit. Democrats favor keeping the payments at an extra $600 a week, which were in place April through July as part of an earlier stimulus plan. Republicans favor a smaller figure, in part because many workers were receiving more in jobless benefits than they were earning in their prior jobs.
Without an extension of benefits, “there will be an air pocket in the economy” in the third quarter, said Joe Brusuelas, chief economist at RSM US.
Many economists said the extra payments both boosted spending and partly inhibited people from going back to work. But they indicated that the positive effect on the economy from the added spending was stronger than the negative consequences of keeping people out of the labor force.
“Both have some truth to them, but we believe the increased spending power that supports demand has a greater weight,” said Nicholas Van Ness, an economist at Crédit Agricole CIB.
The August survey was completed and sent to economists before Mr. Trump set in motion the additional $300 a week in benefits. States have the option of adding an additional $100 a week from their own funds.
Economists surveyed this month saw the economy rebounding 18.3% on an annualized basis in the third quarter, following the 32.9% drop in the second quarter. That was higher than their July forecast of a 15.2% third-quarter bounceback. But economists trimmed their forecasts for the following four quarters, suggesting they see a long recovery ahead.
Roughly 70% percent of economists surveyed said the recovery would look like a “Nike swoosh,” characterized by a sharp drop, followed by a gradual recovery.
Still, the survey suggests the worst of the economic dislocations brought about by the coronavirus is over. The economists saw an average 37% probability of another recession in the next 12 months, down from 54.4% in July and 73.5% in June.
“We likely have just exited a short recession that started in February 2020, but renewed lockdowns could precipitate a double dip,” said Don Leavens, chief economist at the National Electrical Manufacturers Association.
Now that the economy has stopped its sharp slide, some Republicans have said the $600-a-week supplemental jobless benefits need to be ended or pared back to prompt people to go back to work. Roughly 68% of recipients were expected to draw benefits that exceeded lost earnings, according to a University of Chicago study.
A Yale University study last month found that the extra money didn’t affect people’s employment rates. Those whose unemployment payments exceeded their previous income have gone back to their previous jobs at similar rates as other laid-off workers.
A study released Wednesday by Nicolas Petrosky-Nadeau, an economist at the Federal Reserve Bank of San Francisco, said workers in today’s depressed economy would value that working would give them stability over the long term. That would make them more likely to accept job offers that might pay less than the temporary added unemployment benefit.
A Senate Republican proposal would have reduced the extra payment from $600 to $200 a week through September, when the payment would have been set so that federal and state payments would replace roughly 70% of a worker’s former wages.
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Democrats said the extra benefits were still necessary to help people after the pandemic reduced the number of jobs available.
The Labor Department said funding for the Trump administration’s extension would last about six weeks.
The $300 supplement would give about half of recipients the same or more than they were getting while working, the agency said. A $400 supplement would bring that total to about two-thirds of workers.
The Wall Street Journal surveyed 62 economists, but not every economist answered every question.
Write to David Harrison at [email protected]
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