Last week, Governor Polis made the case that paying people not to work will “stimulate the economy” and help struggling businesses. If by “help struggling businesses” he means “prevent them from hiring necessary employees,” then I guess he’s right.
In an open letter to the governor, three Colorado congressional Republicans urged Polis to end the extra $300-per-week unemployment checks that are “incentivizing workers to stay home.” Bafflingly, Polis answered that “these funds have, and continue to, stimulate the economy and bring struggling businesses back from the brink.” He’s got it exactly backwards. These funds are encouraging people to stay out of the workforce and making small business’s problems worse.
Hospitality and food service employment rates, for example, are still well below pre-pandemic levels. The opposite should be true since there are more jobs available than there are unemployed people. A survey from the Colorado Restaurant Association shows that 90% of restaurants can’t hire enough staff. Most of them rightly blame those difficulties on excessive unemployment benefits. Worse, 41% of restaurants are struggling to keep the staff they have left. They are especially experiencing difficulties in hiring back-of-house positions like line cooks and dishwashers. 65% can’t hire enough servers. Yet almost all Colorado restaurants are offering higher wages in those positions.
Restaurants are so desperate for workers that a Colorado Springs dishwasher can now make a staggering $16 an hour. That’s hardly enticing when a family of four can bring in between $18 and $29 per hour in unemployment and other government benefits while not working, as a recent column in Colorado Politics points out.
If this keeps up, things will continue to get worse for struggling Colorado businesses, not better. Colorado’s Unemployment Insurance (UI) trust fund deficit is enormous already. This legislative session produced no plan to pay it down, which means businesses will have to backfill the trust fund through higher payroll taxes. The $300-per-week in extra unemployment benefits, which encourage otherwise capable workers to stay unemployed, will also drive up the UI deficit. The bigger the debt gets, the more the state will have to tax businesses to pay it back, according to the Common Sense Institute. It’s a double whammy for businesses attempting to recover from Polis’s shutdowns and mandates.
Right now, lavish unemployment benefits are increasing the cost for businesses to attract workers. Shortly after those expire, higher payroll taxes will kick in and increase the cost of labor. For many businesses, it will become more expensive just to maintain the same number of employees. It’s hard to grasp how that will help struggling businesses and jumpstart the economy, as Polis claims. Far from bringing businesses back from the brink, Polis is shoving them off the cliff.
What would help these businesses is for people to go back to work. Polis reported that almost 8,000 Coloradans have opted into his “Colorado Jumpstart Program,” which pays them between $1200 and $1600 to go back to work. But that’s a drop in the bucket compared to the 200,000 Coloradans out of a job. The best way to get people back into the workforce is to join the 25 states that are cutting off the flow of excessive federal unemployment benefits. If people can make more money by going back to work, they will go back to work. When people go back to work, they stop receiving unemployment benefits. The growth in UI debt then slows, and the growth in payroll taxes can subside, making it easier for employers to hire more workers in the future.
The economy is opening back up. Unemployment should be dropping precipitously, but it’s not, thanks to Governor Unemployment. The letter from congressional Republicans is exactly right. If Polis really wants that to help small businesses, he can’t wait until September 6 to cut off the excess federal benefits.
Jack Golden is a student at Hillsdale College and is currently in the Future Leaders program at the Independence Institute, a free-market think tank in Denver.
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