As Congress debates extending federal unemployment relief through next January, several Republican lawmakers have cautioned that paying the jobless more than frontline workers risks prolonging the unemployment crisis. As a corrective, Senator Romney (R-Utah) proposed a pro-worker hazard pay program to compensate essential workers for their additional risk. More recently, Sen. Rob Portman (R-Ohio) has proposed a reemployment bonus to entice the unemployed back to work.
Although Portman’s plan is still in the works, his initial proposal would provide a $450 per week bonus to laid-off workers who return to work before July 31, in line with the expiry of the $600 per week Federal Pandemic Unemployment Compensation (FPUC).
As it stands, recent research from the Becker Friedman Institute suggests two-thirds of UI eligible workers can receive benefits which exceed lost earning, with a median wage replacement rate of 134 percent. Portman’s proposal would eliminate this work disincentive by, in essence, allowing rehired workers to retain 75 percent of their forgone FPUC.
In addition to helping workers who return to their jobs, it would resolve the dilemma facing employers that want to call back furloughed employees, but are inhibited in the knowledge that UI pays significantly better. The dilemma is particular fraught for businesses that received loans under the Paycheck Protection Program, and need to rehire laid-off workers to have their loan forgiven.
Reemployment Bonuses Work
Reemployment bonuses have shown success in other parts of the world. In Korea, for instance, if a worker returns to work before receiving half of their unemployment benefits, then half of the residual amount is provided as an early reemployment allowance. This was found to be cost-effective, and to reduce the unemployment period by an average of 31 days.
Some may worry that a rehiring bonus would encourage the unemployed to take the first job they’re offered. Evidence from U.S. field experiments in the 1980’s, however, suggests reemployment bonuses reduce unemployment spells without compromising job quality. Bonuses usually exceeded the amount of foregone unemployment benefits, but were still found to be a net positive for society.
The success of these experiments inspired President Clinton to craft the Reemployment Act of 1994, which would have built reemployment assistance directly into UI. Congress didn’t take it up, and by the time the Workforce Investment Act of 1998 was signed into law, the interest reemployment bonuses disappeared. It’s an idea that deserves a fresh look.