Economic Surplus: Summer Holidays Edition 2
Economic Surplus by The Marshall Society
"There can be economy only where there is efficiency." ― Benjamin Disraeli
Welcome to the Economic Surplus, the newsletter brought to you by the Marshall Society! We are the University of Cambridge's flagship economics society. Every week, we bring you our bespoke commentary on economic trends, updates on our exclusive members' events as well as a summary of the headlines you can't ignore! You've probably received this email because you were previously subscribed to the Marshall Society's old email list, but if you have been forwarded this by a friend, feel free to subscribe here!
This week’s Marshall’s Thoughts are written by Harry Doughty.
Unemployment benefits are always a hot topic in the UK, but today's Marshall's Thoughts take a more US orientated approach and looks at the US's economic relationship with the extdned unemployment insurance benefits that arose from the pandemic.
In March 2020, once it was obvious that the Covid-19 pandemic would dump many more Americans into poverty, Congress acted by expanding unemployment insurance via the topping up of payment, allowing claimants to stay on the benefits for longer and increasing the eligibility criteria. However, it was March when the last extended federal funding package was passed and is due to expire on the 6th of September. Some within the populace believe this will bring people back to work, with employment being below the 5.7 million levels in February 2020 and many firms being unable to fill vacancies. Indeed, this thinking is in line with economic theory that says unemployment benefits deter jobseeking and is supported by most studies of its effects before 2020.
This correlation hasn't been present during the pandemic though. The states that have already curtailed the Covid-19 benefits or stopped them altogether have not seen stronger economic growth than those that haven't taken this action. The states that kept the benefits saw a rise of 3.5 percentage points in employment, whereas those that cut them only saw a 2.7 percentage point rise.
Therefore, although our prior thinking on the effects of higher unemployment insurance wasn't wrong, it just simply isn't applicable during a highly unusual period; nonetheless, high unemployment insurance could be having effects elsewhere. One suggestion could be that it is making workers choosier, leading to rising wages, which could be inflationary-a plausible explanation given the comparatively high inflationary environment we currently find ourselves in.
In conclusion, is it right for the US to cut off these benefits in September? If the above expectation becomes visible then yes. It may leave less money in the pocket of the jobless, but forecasting suggests there would only be a $2 billion fall in consumer spending, a small figure compared to the monthly consumer spending aggregate in the US of $1.3 trillion. This is a small price worth paying if it means inflation is held down, even if only by a small degree.
In Case You Missed It:
The Afghanistan debacle has weakened ties between Britain and America | The Economist – Joe Biden unilaterally announced that all American troops would leave Afghanistan by August 31st, opening the way to a lightning conquest of most of the country by the Taliban. The chaos that followed at Kabul airport as thousands of frightened Afghans tried desperately to escape has shocked the world—and led even the British to ask if the transatlantic relationship is still working.
The Next Pandemic Could Come Soon and Be Deadlier | Center for Global Development – Pandemic risk is largely underestimated and actions to prepare for outbreaks are grossly underinvested. The spread and severity of COVID-19 felt like a surprise to many policymakers – a clear case in point. But careful analyses are suggesting that future pandemic risks are significant.
Higher Prescription Drug Cost-Sharing Raises Mortality among Medicare Beneficiaries | NBER – What are the health consequences when patients reduce their use of prescribed medications in response to higher out-of-pocket costs? In The Health Costs of Cost-Sharing (NBER Working Paper 28439), researchers Amitabh Chandra, Evan Flack and Ziad Obermeyer use the distinctive out-of-pocket cost-sharing features of Medicare Part D to demonstrate that such reductions can increase mortality.
The Societal Responses to COVID-19: Evidence from the G7 Countries | CEPR – This paper provides a new picture of how countries have responded to the COVID-19 pandemic by examining the effects of the pandemic in terms of normative foundations for societal wellbeing. Social prosperity depends primarily on the functioning of four domains: the economy, the state, civil society and the environment.
That's it from us for now!
The Marshall Society