Biden's Bailout Package Would Make Him Job Killer in Chief | Opinion

President Joe Biden's $1.9 trillion coronavirus relief package provides an unprecedented number of incentives to de-stimulate labor markets and reduce job growth. Economists disagree about the extent of the effects the bill will have on employment. But they all agree those effects are not positive. Indeed, it is hard to recall any package that combines so many negative labor market incentives at once.

There are at least five parts of the bill that raise major concerns about reducing job growth. The first is a minimum wage increase that will raise the cost of hiring, and thus reduce demand for workers. Economists disagree on the size of the impact—partly because employers may reduce non-wage compensation in response—but no one believes it helps job growth.

Second, extending the generous unemployment insurance add-on of $400 a week would be highly damaging to job growth. These COVID add-ons are part of the reason the number of people on the unemployment insurance rolls is still so high. A University of Chicago report found the measure would implicitly give a raise to the majority of the work force for not working. The $400-per-week benefit for not working requires struggling businesses to pay an extra $10 per hour for a 40-hour work week to compete with unemployment insurance payments. This is a huge work disincentive, since people don't like work in itself—that's why they need to get paid for it. Biden's proposal is 16 times larger in nominal terms than the $25 add-on under Barack Obama, which many economists cited as a reason for a slow recovery after the Great Recession.

Third, Biden's bill includes a massive increase in Affordable Care Act subsidies, which Casey Mulligan and others have estimated is one of the largest implicit taxes on work even without an increase. When working means losing government health coverage, work becomes less attractive. A recent Galen Institute report finds that the implicit health care tax hike in the Biden bill would be most dramatic for the old and the newly eligible in the middle class or above.

Fourth, the package would pay many public workers, such as teachers, to not show up for work. Unlike the unemployment insurance benefit that replaces more than 100 percent of earnings for not working, public workers only get full pay for not showing up. Government statistics count many public workers as still producing GDP and being employed even though they are not working. Just ask the parents stuck with kids at home if those statistics are misleading.

Fifth, the bill would increase family and sick leave benefits. These are of course well intended but abundant evidence demonstrates their negative employment effects. For example, one of the largest improvements in Sweden's measured public health statistics occurred when sick leave policies were rolled back.

The main argument supporters of this combination of job killers make is that it provides liquidity rather than stimulates the economy. In other words, the measures harm economic incentives but provide a bridge to an economy saved by the vaccines made available by Operation Warp Speed. But since last summer, I have argued that the CARES Act was a massive overreaction in terms of liquidity and the same is true of its current Biden cousin. Even liberal economists like Larry Summers are now coming to agree, half a year later.

The CARES Act overshot so far that real disposable personal incomes (private income plus government payments) showed a record increase of 45 percent in the second quarter of 2020, while at the same time GDP dropped by 33 percent (annual rates). This enormous disposable income growth was not simply the rebound from a large previous dip, as has been true for many other economic measures during COVID. Rather, it resulted from government payments exploding relative to private income losses.

Indeed, every previous recession included quarters of decline in disposable income growth despite government assistance. But the 2020 COVID downturn was unique—it saw a rise in disposable incomes. In fact, that rise was a record, even compared with all previous economic booms. To put its 45 percent annualized growth in perspective, the best boom in the last 35 years had a growth of about 14 percent, less than a third of the COVID income boom.

The Biden package seems to be arguing for even larger overpayments relative to production losses in order to provide liquidity and insure the COVID shock. But that's like buying insurance for a Honda and getting a Ferrari when you crash it. The Biden plan for excessive liquidity comes even as many economic signs are far better than they were when the excessive CARES Act was passed.

Politicians, like most people, act in their own self-interest and presumably believe they are buying votes by killing jobs. But won't voters react negatively to a bad job market? Perhaps not, as it will be hard for voters to detect the employment effects of Biden's job-killing measures. Biden can hide behind the coming economic boom enabled by Operation Warp Speed, but it will bring far fewer jobs with his proposal than without it.

Through targeted relief less tied to employment status, we can do better to help the many who are truly hurting. But this historic combination of job-killing measures all imposed at once ultimately will hurt those it intends to help.

Tomas J. Philipson, an economist at the University of Chicago, served on the White House Council of Economic Advisers as a member and acting chairman from 2017-20.

The views expressed in this article are the writer's own.