The Unintended Consequences of Generous Unemployment Benefits

The Unintended Consequences of Generous Unemployment Benefits

 

 The unintended consequences of generous unemployment benefits 

 

By David Bass

 

 

This year has seen some of the most generous unemployment benefit checks since the Great Recession in 2007-2009—and with good reason. As the economic fallout from the COVID-19 pandemic has put 20 million Americans out of work, and over half-a-million right here in Georgia, the need for robust help is pressing. 

Currently, the maximum weekly unemployment benefit available in Georgia is $665, a combination of $365 in state compensation and $300 in federal dollars (due to a recent executive order from President Trump). Earlier this year, the total package was even more generous at $965 due to $600 in federal unemployment checks (a benefit amount that expired on July 31).

This means that an unemployed individual could qualify for the equivalent of a $16.63 per-hour job right now. Not every worker will qualify for this maximum amount because unemployment insurance payments are based on recent earnings over a 52-week period. According to U.S. Department of Labor data, Georgia’s average unemployment is closer to $225 a week, for a combined value of $525 per week when mixed with federal dollars.

What’s more, the federal $300 per-week payments are only guaranteed for three weeks, although it is likely unemployed individuals will receive them for a longer period of time. Also, workers who are receiving less than $100 per week in state unemployment payments are ineligible for the $300 federal payments, meaning that many low-income, part-time, or seasonal workers will likely not qualify.

 

Do higher unemployment payments have unintended impacts?

These more generous unemployment payments raise an important question: Are there unintended consequences? The answer is clearly yes.

As scholars with the American Enterprise Institute have documented, generous unemployment checks contribute to both delays in workers re-entering the economy and ultimately the economic rebound itself. Workers are not to blame—if your only job options pay less than unemployment compensation, it makes sense to delay joining the workforce again. In many situations, this is the case: One analysis from the University of Chicago concluded that two-thirds of workers eligible for unemployment benefits would receive a benefit amount that exceeds their previous pay.

These unintended impacts are another example of a welfare cliff, the idea that welfare programs often punish efforts to work—due to dramatic drops or “cliffs” in benefits as a recipient’s income increases, even by just cents per hour. For more information on welfare cliffs, visit WelfareCliff.org.

 

Georgia employers are feeling the crunch

If our goal with unemployment insurance is to serve as a bridge for workers during hard times to propel them back into employment, then our current response is not working properly.

Buffalo Rock Pepsi in Columbus, Georgia, shared with the Georgia Center for Opportunity team that it has had a challenging time this year filling positions for warehouse workers and warehouse coordinators. The resulting shortage of workers has put a strain on existing staff.

Ankerpak—a third-party packaging, fulfillment, and storage facility also based in Columbus—is experiencing similar roadblocks. The company has struggled to fill assembly line positions, and it identifies the high value of unemployment benefits as a primary reason. “Due to challenges presented by lack of staffing, we are nearly 20 people short on a regular basis. We are unable to meet our customers’ demands and/or deadlines, putting us at risk of losing business during these trying times,” the Ankerpak team shared with us.

 

A way forward

We are not advocating against unemployment insurance or proposing cuts, but it’s clear the existing system has unintended negative impacts. Ultimately, the right question to ask is this: What is the purpose of a public service like unemployment insurance? If it is to truly be a safety net, we must address the problem of when a safety net becomes a snare to keep hard-hit populations trapped in cycles of poverty.

Any true solution to this problem must be local and homegrown. This is where Hiring Well, Doing Good (HWDG) comes in. HWDG connects local job seekers with the training and support needed to not just find a job, but a job that leads to a sustainable wage and a meaningful career. Cooperating on a local level, HWDG brings together individuals, companies, nonprofits, and other service providers to solve unemployment and help people achieve a flourishing life.

Ultimately, the goal of unemployment insurance should be as a bridge to return to the workforce. Local initiatives like HWDG are a catalyst for that return reentry into the labor force in a better job with an upward trajectory.

 

DISINCENTIVES FOR WORK AND MARRIAGE IN GEORGIA’S WELFARE SYSTEM

Based on the most recent 2015 data, this report provides an in-depth look at the welfare cliffs across the state of Georgia. A computer model was created to demonstrate how welfare programs, alone or in combination with other programs, create multiple welfare cliffs for recipients that punish work. In addition to covering a dozen programs – more than any previous model – the tool used to produce the following report allows users to see how the welfare cliff affects individuals and families with very specific characteristics, including the age and sex of the parent, number of children, age of children, income, and other variables. Welfare reform conversations often lack a complete understanding of just how means-tested programs actually inflict harm on some of the neediest within our state’s communities.

Welfare Without Dignity Doesn’t Work

Welfare Without Dignity Doesn’t Work

Welfare Without Dignity Doesn’t Work 

 

 

By Corey Burres

 

 

I drove through my neighborhood and saw dozens of tents lining the wooded area near my home. I realized there were families and single mothers living in these tents. My heart broke. How did we get here? When did we start to accept this for those in our communities?

I know from our work at Georgia Center for Opportunity (GCO) there are local and governmental services available. I know there are many community groups and philanthropic organizations working to address the basic needs of shelter, food, and health. But I question if these systems address the issue of dignity.

Dignity is a word we throw around a lot at GCO. It’s a core value for our team, but it is also a core component of how we choose to view others. It is a driver, yes, but more importantly, it is a goal. We can address needs and make some headway, but until we restore dignity to individuals we will continue to fight an endless battle. Government safety-net programs are not designed to restore dignity. That is a problem.

Without finding self-worth and dignity in what we do, we continue to seek “just enough.” If we truly want those around us to thrive, we must create systems that seek to do more than simply appease a need. We must create systems that see the value of peoples’ humanity and desire for them to move into a vibrant and thriving future.

The fact of the matter is that systems like Medicaid, food stamps, and other programs are not designed to move people into a better life. Instead, they are a stop-gap that simply meets an immediate or temporary need.

If we truly want those around us to thrive, we must create systems that seek to do more than simply appease a need. We must create systems that see the value of peoples’ humanity and desire for them to move into a vibrant and thriving future.

In the case of temporary unemployment or hard times, this is sufficient and works as intended. It’s why many people tout the effectiveness of these programs. They do work—for some.

However, in the case of intergenerational or long-term poverty, the result is marginalized groups systemically stuck—trapped in dependency and without hope.

And that is what I see when I pass these tent cities. These are our neighbors who have surrendered to a way of life, one that we desperately hope our own loved ones will never experience. The tragedy is that our political leaders have done just enough to appease them.

True compassion says we should hope for them to move off government assistance programs and feel the sense of dignity and belonging we want for everyone.

Over the next month, we are going to highlight changes to assistance programs that will remove the traps in our safety-net systems. We will highlight local support networks that view the individual through the lens of the dignity that they deserve. And we will bring together the business and community leaders leading the charge at Breakthrough.

Will you join us?

 

Welfare Cliffs Exist—Concludes Team of Economists

Welfare Cliffs Exist—Concludes Team of Economists

 

 

 

Welfare Cliffs Exist—Concludes Team of Economists 

 

 

 

 

 

 

By Erik Randolph

 

 

Since 2016, the Georgia Center for Opportunity (GCO) has demonstrated the existence of welfare cliffs. Now a team of five economists has come to the same conclusion.

Welfare cliffs are an unfortunate feature of the American welfare system. They occur when a family’s breadwinner, or an individual, discovers that his or her family will become worse off economically by earning more money. It sounds paradoxical, but it happens whenever the loss in welfare benefits exceeds the additional take-home pay.

Exactly when the cliffs occur, and how bad they are, depends on many factors, including the characteristics of the family, how much they earn, and where they live. And because of the haphazard way the welfare system is constructed, it turns out that there isn’t a single cliff but multiple cliffs that a family can encounter over the range of potential earnings.

For more information on GCO’s work on the cliffs, check out this website that shows cliffs in eight states by common family types.

New Study

Authored by economists at the Federal Reserve Bank of Atlanta, Boston University, and the University of California, Berkeley, a newly published study takes a sophisticated approach to identify disincentives in the U.S. tax and welfare structure. Published as a working paper by the National Bureau of Economic Research (NBER), the authors fed the results of the most recent Survey of Consumer Finances through a fiscal analyzer.

The Economic Team

David Altig, Federal Reserve Bank of Atlanta

Alan J. Auerbach, University of California, Berkeley and NBER

Laurence J. Kotlikoff, Boston University and NBER

Elias Ilin, Federal Reserve Bank of Atlanta and Boston University

Victor Ye, Boston University

 

 

The Survey of Consumer Finances is a project of the Board of Governors of the Federal Reserve System. It is the most comprehensive survey examining the personal finances of American individuals and families. Thus, the input data for their study represent a statistical picture of how families are faring economically.

In other words, the financial situations of a representative cross-section of families in America was fed through a fiscal analyzer. This particular fiscal analyzer was based on a personal financial planning tool developed by the software company of Laurence Kotlikoff, one of the study’s authors.

The fiscal analyzer estimates the likely future financial path that individuals or families will take over their remaining lifetime, along with the future taxes and benefits they will pay or receive. The study uses standard mortality rates to predict lifespans and gives a unique calculation on the degree and magnitude that incentives or disincentives exist over that likely path.

The study defined the future fiscal burdens, consisting as taxes and benefits, as marginal tax rates. If a person’s remaining marginal tax rate increases, then so does the tax burden. The greater the magnitude of the marginal tax rate, the greater the disincentive.

Study Results

Given our own work, the conclusion of the authors was not surprising. To quote from their study:

“Our findings are striking. One in four low-wage workers face marginal net tax rates above 70 percent, effectively locking them into poverty.”

“… one in four bottom-quintile households, regardless of age, face marginal tax rates above 65 percent. Thus, a major share of poor households are effectively locked into poverty by America’s fiscal system.”

The authors were careful to point out that this study looks at the structure of America’s fiscal system, meaning these disincentives are hardwired into the laws and rules of the system. This corroborates exactly with our research. The very rules themselves are what create the disincentives and the cliffs. The silver lining here is that rules can be changed.

This study did not attempt to measure how people react to the disincentives. Some might bite the bullet, take the hit, and still advance their earnings anyway. On the other hand, others may take a defeatist tact, backing off from earning more to draw down more government assistance. This is a ripe area for future research, to determine the proportion of people who forge ahead anyway versus those who give up and retreat.

In the meantime, we shouldn’t wait for future research on how many people accept defeat and remain poor. It makes more sense to fix the rules now so the question becomes moot.

Erik Randolph is Director of Research at the Georgia Center for Opportunity. This blog reflects his opinion and not necessarily that of the Georgia Center for Opportunity.

 

 

 

 

DISINCENTIVES FOR WORK AND MARRIAGE IN GEORGIA’S WELFARE SYSTEM

Based on the most recent 2015 data, this report provides an in-depth look at the welfare cliffs across the state of Georgia. A computer model was created to demonstrate how welfare programs, alone or in combination with other programs, create multiple welfare cliffs for recipients that punish work. In addition to covering a dozen programs – more than any previous model – the tool used to produce the following report allows users to see how the welfare cliff affects individuals and families with very specific characteristics, including the age and sex of the parent, number of children, age of children, income, and other variables. Welfare reform conversations often lack a complete understanding of just how means-tested programs actually inflict harm on some of the neediest within our state’s communities.

The Power of Second Chances

The Power of Second Chances

The Power of Second Chances

By David Bass

Imagine stepping from a life of homelessness characterized by desperation and deprivation to a full, rich life in which you can contribute and build a future.

That was Jonathan’s story of transformation. As a graduate of CKS Packaging’s Second Chance Program, Jonathan went from homeless to employed in an entry-level job with a solid upward trajectory, allowing him to support his family,  save money for the future, and continue job training and education.

“What the Second Chance Program did was provide discipline, provide structure, and provide a lifeline,” Jonathan shared.

We love stories like these because they demonstrate so vividly this truth: When people are desperate, they need a sense of control over their lives. Without it, they are more likely to fall back into old bad habits and ways of doing things, such as substance abuse, crime, and homelessness.

A job with an upward trajectory is a key way to restore control and confidence in someone’s life.

 

Find out our full analysis of this
Second Chance Program.

A second chance

CKS Packaging is an Atlanta-based company that manufactures plastic containers for such clients as Coca-Cola, Chick-fil-A, and Kroger. The company created the Second Chance Program in 2016 to partner with service organizations in the Atlanta area with the sole purpose of recruiting struggling individuals who need a second chance at employment. 

Georgia Center for Opportunity recently published a research report on the impressive results from the Second Chance Program.

According to Lloyd Martin, the VP of manufacturing and leader of the Second Chance Program at CKS Packaging, many service providers in the community deal with surface issues without addressing the root cause of a person’s problem. In contrast, the Second Chance Program recognizes that a job, and the stability it provides, is a vital plank in rebuilding a foundation for a fruitful life.

Another graduate of the program, Greg, shared that Second Chance provided him a job after hundreds of companies had rejected him due to his criminal record. “When so many other people have said no to you, and then someone steps up and gives you a chance and has faith in you, it makes you want to give it 150% every day,” Greg says. He now plans to stay with the company until retirement.

CKS Packaging didn’t just provide a second chance for Greg. It provided a career.

Doing good while making a profit

CKS Packaging and the Second Chance Program show that it’s possible to do good business while doing good for the community. In fact, they go hand in hand.

According to CKS Packaging, the Second Chance Program has allowed the company to fill the gap in labor they were facing with long-term, dependable employees who otherwise may have not gotten a chance to turn their lives around. In the last five years, the company has hired 473 people through the program.

That impact extends beyond a company’s bottom line and individual lives to enrich an entire community.

 

To learn more about what Georgia Center for Opportunity is doing to help get Georgians back to work check out our Hiring Well, Doing Good initiative.

Gov. Kemp signs ‘second chance’ expungement bill into law for ex-offenders

Gov. Kemp signs ‘second chance’ expungement bill into law for ex-offenders

Gov. Kemp signs ‘second chance’ expungement bill into law for ex-offenders

 

 

By David Bass

 

For many Georgians, past criminal conviction can be the most significant hurdle to overcome in getting a job. On this front, there is good news: Gov. Brian Kemp recently signed a bill (SB288) into law that allows formerly incarcerated individuals to petition the court to have certain misdemeanor convictions erased from their record four years after the completion of their sentence. 

 

The new law excludes certain offenses, including sexual offenses and DUIs. In a crucial move, the law also creates incentives for employers to make “second chance” hires.

 

This new law allows for an easier transition back into the workforce for a segment of Georgia’s population that has paid its debt to society and stayed on the straight and narrow.

 

“This new law is monumental because it takes Georgia off the list of only a handful of states where a criminal offense stays on an ex-offender’s record perpetually,” said Buzz Brockway, vice president of policy at Georgia Center for Opportunity. “We know that unemployment is a key way to help ex-offenders not repeat their crimes. Particularly in the COVID-19 era, breaking down any barriers to employment that we can is always a huge win. We applaud Gov. Kemp and the Georgia Legislature for making this law a reality.”

 

Microschools, hybrid options, and online classes: Education during COVID and beyond

Microschools, hybrid options, and online classes: Education during COVID and beyond

Microschools, hybrid options, and online classes: Education during COVID and beyond 

 

By Eric Wearne 

 

 

 

 

 

 

 

On the afternoon of Monday, July 20—just a few weeks before schools would normally be opening—the Catholic Archdiocese of Atlanta announced that their schools would in fact all be opening for live classes in August. The Superintendent’s statement suggests “…the benefits of in-person instruction, compared with remote delivery, far outweigh the possible risks involved.” Families uncomfortable with in-classroom instruction may choose online instruction, following individual school plans.   

Just a few hours before the announcement from the Archdiocese, Gwinnett County Public Schools—the largest public school system in the state—announced that they would be starting the school year completely online. Though the system had announced earlier that it would give parents the choice between in-person and online learning, the most recent statement says, “The current COVID-19 situation required a change in those plans.” This has led to significant online anger and multiple protests at the system’s central office.

Both the Catholic Archdiocese schools and Gwinnett County Public Schools say they based their decisions following federal and state health guidelines and the advice of medical and educational experts. Why, then, such opposing decisions from the two school systems? Are the health guidelines contradictory? Are the Archdiocese and Gwinnett cherry-picking the medical and educational experts they listen to?     

Likely none of the above. What we may instead be seeing is simply that smaller entities can be more nimble. And that larger entities would be well-advised to do what they can to learn from that agility. 

At an event earlier this month, the founder of the growing microschool network Prenda, Kelly Smith, suggested that an important lesson all school systems might learn from smaller organizations—especially given the large health, economic, and educational issues presented by the pandemic—is  that they should accept and in fact facilitate more segmentation among their constituents. This may be particularly true for public school systems like Gwinnett, which encompasses a relatively large geographic area and serves over 180,000 students in 141 different schools. Many students would benefit from more choices in schooling even under completely normal circumstances. At a time when everyone’s circumstances are even more unique and individualized because of the differential impact of the pandemic on families, more flexibility is even more important.

A major complication in this debate is that the reasons families want to return to school vary so much.  That is, for some families, the dynamics of learning at home simply do not work well. As examples, some families have students with special needs who require particular kinds of attention. Some families must work outside the home to survive financially. (A number of services are cropping up around Gwinnett County and elsewhere to facilitate online learning or simply childcare, set up by gyms, YMCAs,  performing arts centers, or other places that are typically not full during the school day. While this is an example of civil society and the market responding to fill a need, it comes at a cost—sometimes a few hundred dollars per month, which many families cannot afford). 

Some believe any school openings for face-to-face learning means the school/system will not adapt no matter what circumstances arise and that such decisions are consigning people to die.  Of course that is not true. The Archdiocese of Atlanta and other private and public schools who are offering face-to-face schooling will continue to monitor schools and said they will close down quickly if necessary.

It is too early to know whether opening schools in-person will lead to a worse health crisis, or keeping them online will lead to even worse economic and psychological crises.  Other creative solutions, like moving as many classes as possible outdoors, or operating on a hybrid home school-style schedule (2-3 days per week) might be worth exploring to a greater extent than they have been so far. 

One thing both public and private schools should absolutely do in this moment is learn to be more responsive to smaller groups of constituents, rather than imposing singular, large-scale solutions.  Families must, one way or another, find their way through this school year. They are already building solutions for themselves, outside of the constraints of their school systems. Legislators in Colorado, among other states, are considering whether to fund families directly in response to school closures. School leaders need to adapt, quickly, or risk being left behind.

 

Eric Wearne is a faculty member in the Education Economics Center at Kennesaw State University.

He is also the author of Little Platoons: Defining Hybrid Home Schools in America, forthcoming from Lexington Books. Learn more about Eric. 

EVERY CHILD WITH ACCESS TO A QUALITY EDUCATION

 

A quality education is key to a child’s future success. Academic achievement paves the way to a good job, self-sufficiency, and the earned success we all want for our children. To learn more about education options in Georgia click here

Children excited as they leave school