Higher unemployment benefits undercut small businesses' ability to retain employees.
One of the most common occurrences when Congress rushes to fix a problem is that there are unintended or unforeseen consequences created by the “solution.” In fact, the bigger the “fix,” the greater the probability for it creating more problems than it solves. Congress’s recent $2.2 trillion CARES Act provides yet another classic case reinforcing this principle.
The Paycheck Protection Program (PPP), a part of the CARES Act that provides forgivable loans to “small” businesses to help them stay afloat and retain their employees throughout the China Virus-induced economic shutdown, has been undercut by other provisions within the overall legislation.
For example, “The Cares Act created a perverse incentive not to work,” write Rep. Chip Roy (R-TX) and Emily Williams Knight, CEO of the Texas Restaurant Association. “Because the Cares Act pays an additional $600 a week in unemployment benefits, many restaurants will find it difficult to get employees back on the job. And if they don’t, restaurants can’t receive loan forgiveness.” Furthermore, Roy and Knight note, “The PPP requirement that 75% of the forgivable loan be spent on payroll puts restaurants with expensive rent in an untenable position. That requirement doesn’t account for differences in business structures.”
The PPP was ostensibly aimed at helping small businesses, but in several ways it’s making it harder for many small businesses to get back to business because they’re competing with government to retain their employees. For instance, the CARES Act’s overly generous unemployment compensation disincentivizes employees from going back to work. They’re getting more money for staying on unemployment than working.
More HERE
