Jobs, Jobs, Jobs

By now we know the U.S. jobs market is in free fall, but Friday's jobs report probably won’t give investors a good sense of the damage. The reason, as Barrons’ Lisa Beilfuss explains today, is that the surveys the government uses to construct the monthly jobs report take place in the first half of the month. Even so, it will probably be the first negative month since the end of the “great” recession. Lisa writes:

Payroll provider ADP provided an early glimpse of how current data may not reflect reality on the ground as its survey period, like the Labor Department’s, ends on the 12th of the month. ADP said Wednesday that small businesses eliminated 90,000 jobs in March, a decline that was offset by hiring last month across larger companies, resulting in an overall drop in private payrolls of 27,000.

The question is what to do about it. I recommend reading this guest column by Kate Bahn, the director of labor market policy at the Washington Center for Equitable Growth. The recently-passed fiscal package sets up an interesting experiment, she writes: 

The Cares Act increased unemployment insurance, providing total income replacement for the average worker who loses a job due to the mandatory public-health measures being instituted across the country. This aspect of the legislation calls into question the conventional economic wisdom about minimizing unemployment payments to incentivize work, especially during a crisis. 

Never before has the “replacement rate” for unemployment insurance matched prior earnings, nor has it applied to so many workers. Typically, workers receive less than half their prior earnings when collecting unemployment insurance. 

The standard argument against generous unemployment benefits is that they discourage people from looking for new jobs. Even if that argument is correct, Bahn notes that the economy as a whole can still benefit, because people with more money will spend more:

The United States is already on the lower end of the benefit spectrum among developed countries. The rationale is partially to keep costs low, but it is also to reduce what economists call “moral hazard,” the idea that people will not want to work unless they are incentivized to find a job due to economic hardship associated with unemployment. But when used as a justification for stinginess in social programs, moral hazard often fails to appreciate the crucial role payments play in maintaining aggregate economic activity and household financial security. Low-wage workers spend more of their income rather than saving it, known as their “marginal propensity to consume,” so increasing their take-home pay has a multiplier effect in the economy, generating more economic activity. Paying lower-wage workers less just keeps them from spending. 

The danger is that the money for increased benefits runs out before the health crisis is over.