ND Wages and Unemployment Benefits

There are lots of stories around unemployment benefits and the good or bad aspects of the policy enacted through the CARES act, specifically an additional $600 in benefits per week. Why that dollar value in particular? There was an intent to make it more of a locally based number, but that quickly became an intractable problem that would delay, arguably needlessly, necessary aid. As a result the legislation used more of a national average number. The upside is it should help maintain some level of demand with more funds in the hand of people. The downside is that it might disincentivize a return to work, though this would be region and job specific and involves some short run versus long run issues.

This is a bigger issue being tackled nationally. Jamie Dimon of J.P. Morgan Chase said it is clear that more people were at risk than was realized prior to COVID-19. Some may question the issue of realization, but I think it is clear that was the case when you consider the surveys asking about the ability to handle a medical payment or home repair. The moral hazard of the policy was likely a necessary risk to act in a timely manner.

Before we begin a discussion of wage replacement/supplement, let’s look at the wage levels for different areas.

The notable items are that Grand Forks metro area is at the low end of the average weekly wage, well below the US and state levels. The effects of the Bakken oil boom can be seen as even Fargo and Bismarck metro areas fall below the state weekly average wage for a time.

There is a need to set the stage for later discussion as well. With that in mind I did a quick forecast of the Grand Forks weekly wage which can be seen below.

The expectation should have been for wages to rise, though I think that will likely not be the case given the COVID-19 impacts. This will be an important item to keep in mind as we move forward with more data coming out.

The unemployment benefits for a Grand Forks resident based on the actual data for 2019q1-q3 and my forecast value for 2020q4 imply a weekly unemployment benefit of $443. If we add the additional $600 that brings the weekly benefit to $1043, which is $200 above the average from 2019.

Could this provide a disincentive to work? Sure. However, let’s ask this another way? Are the benefits too high, or are local wages too low?

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