ON TAP Today from the American Prospect
MARCH 27, 2020

Kuttner on TAP

Oh, No! Better Unemployment Benefits Raise Low Wages. The Republican senators who tried a last-ditch effort to water down the stimulus bill had one major concern: If federal unemployment benefits were increased, companies that depend on low-wage labor might have trouble coaxing people back to work for a pittance. Oh, the horror!

As The Wall Street Journal lead editorial put it, in inimitable fashion, “Amazon, Walmart, CVS and delivery services are seeking to hire hundreds of thousands of workers to meet a surge in demand even as the virus spreads. Many are boosting pay, but how are they supposed to compete with workers who can stay at home and make more?”

And the Journal warned gravely, “The enhanced benefits expire after four months, but we’ll bet Speaker Pelosi’s pension that Democrats will be back demanding an extension through the end of the year and calling Republicans ‘cruel’ if they disagree.”

Duh—how prescient of the Journal. Democrats should indeed take full advantage of this crisis to get reforms that are long overdue: more adequate replacement of lost wages for laid-off workers; full unemployment coverage for gig workers, freelancers, and other 1099 employees.

As for poor Amazon, Walmart, and others of the world’s most profitable companies that may find it harder to get workers to risk their life and health for lousy jobs, there is a remedy that the Journal may recognize as part of standard economic supply-and-demand theory: Raise their wages!

And don’t tell us that this would be inflationary. The crisis that this economy faces is deflation.

The historic function of unemployment comp is not just to keep idle workers from starvation, but to raise what economists call the “reservation wage,” otherwise known as a desperation wage, that workers are compelled to take to survive. And if the corona crisis raises that wage to $15 an hour or more, it’s one of the very few good side effects. ~ ROBERT KUTTNER