Unemployed Americans will lose a vital economic lifeline within days if Congress fails to pass a new coronavirus relief package soon.
The $600 in extra federal unemployment benefits expires this week at a critical time as layoffs are picking up across the country, coronavirus cases are rising again and states are halting reopenings, a series of threats that could upend the economic recovery.
Democrats have argued for an extension of the benefits. Though President Donald Trump and some Republicans worry that extending the supplement will disincentivize unemployed Americans to return to work because they were earning more through unemployment than their job.
“We had something where … it gave you a disincentive to work last time,” Trump said in an interview with Fox Business earlier this month. “We want to create a very great incentive to work.”
Millions of unemployed Americans are making more than they did at their jobs. Here’s what experts have to say about it and the trajectory of the economy:
How many people receive the $600?
More than 25 million workers will lose the $600 federal unemployment supplement, to the tune of more than $15 billion per week, according to The Century Foundation, a nonprofit think tank.
Critics of expanding unemployment insurance argue that the extra money discourages Americans from finding new work, especially since many low-wage workers in hard-hit industries like restaurants and retail have received more money in unemployment.
“This is turning into a deterrent to get people to go back to work,” says Dr. Michael Busler, a public policy analyst and a professor of finance at Stockton University in New Jersey. “The stimulus has been sufficient so far. But we could be going through a second wave of the virus. Let’s give it more time and reconsider later.”
The bonus benefit has posed challenges for businesses that need to recruit low-wage workers. Employers in low-cost areas of the country will likely be disproportionately affected as the cost of living varies geographically. Employers that want new, low-wage workers will need to pay more until the higher benefit levels expire, experts say.
Although this may create a temporary drag on a recovery in some places, the unemployment increase has been critical for keeping nonessential workers at home to contain the pandemic and keeping a roof over their heads, they added.
The labor market is facing a net loss of 14.7 million job losses from the coronavirus recession. Jobless claims remain historically high and permanent job losses are growing, a troubling sign for the labor market. In June, the number of people who have permanently lost their job rose by 588,000 to 2.9 million.
Hard-hit, low-wage industries like hospitality, restaurant and retail have led the recovery as states began reopening in May. But white-collar workers who had been relatively less affected at the onset of the pandemic appear more exposed to permanent layoffs, economists say.
And further pain could be on the horizon. Initial claims for jobless benefits have remained above 1 million for 18 consecutive weeks. That eclipses a peak of 665,000 in March 2009 following the aftermath of the global financial crisis, and topped a previous record of 695,000 in October 1982 during another economic downturn.
Another 1.4 million Americans filed jobless claims for the first time last week, the Labor Department said Thursday, snapping a 15-week stretch in which initial weekly claims steadily declined. In little more than four months, 52.7 million sought unemployment aid for the first time.
“Removing this lifeline would only drive the economy into a deeper recession,” warns Michael Klein, professor of international economic affairs at The Fletcher School at Tufts University and former chief economist in the Office of International Affairs of the Department of the Treasury.
“Many people are living on the edge with no savings. Without this money, we’ll likely have a huge wave of people not being able to make their rent or mortgage, or not being able to feed their families.”
How many people collect more money with the extra $600?
More than two-thirds of workers on jobless benefits are making more in unemployment than they did while working, and one in five eligible unemployed workers will receive benefits at least twice as large as their lost earnings, according to economists at the University of Chicago.
Experts say it’s difficult to calculate exactly how many people are making more money on unemployment because the CARES Act opened the door for more groups to apply for aid who typically don’t qualify for traditional unemployment, including furloughed employees, self-employed, independent contractors, temporary workers and gig workers.
A worker earning the federal minimum wage of $7.25 per hour who works 40 hours per week earns $290 per week in gross wages—less than half of the $600 weekly increase, according to The Brookings Institution, a nonprofit public policy organization. On average, a worker collecting unemployment and the $600 is making between $20.38 per hour in Mississippi to $28.75 in Massachusetts.
To be sure, even an additional $600 per week does not achieve full wage replacement in some high-cost cities. In 10 U.S. metropolitan regions, including the viral hotspot of New York City, the disconnect between wages and the cost of living is so extreme that even an extra $600 per week doesn’t get a median-wage worker to full wage replacement, according to The Brookings Institution.
These 10 regions, including Boston, San Francisco, Seattle and Washington, D.C., are home to more than 46 million people, or 14% of the U.S. population.
Why did Congress agree to $600?
State unemployment programs only cover about 41% of someone’s lost wages, according to The Brookings Institution. The average hourly wage in the U.S. is $25.72. Congress aimed to cover 100% of lost wages given the severity of the recession.
But customizing the benefits to match people’s salaries posed challenges due to outdated state unemployment systems. In March, Congress opted to give Americans a $600 bonus payment to equal the average wage, or about $1,000 per week.
State benefits average just $370 a week, according to Goldman Sachs estimates. That’s down from about $970 per week with the extra $600 benefit.
How do new proposals stack up against wages?
Senate Republicans were scrambling Thursday to finalize a $1 trillion coronavirus relief package. Proposed Republican legislation will include a limited extension of unemployment benefits, Treasury Secretary Steven Mnuchin has said. The supplemental benefit will be restructured so that instead of a $600 flat rate, a new formula would be used to replace 70% of a worker’s lost wages through combined state and federal benefits. That would lower the federal benefit to about $200 a week for the average worker.
As layoffs continue, some economists fear that reduced payments won’t be enough to help struggling Americans as more states halt reopenings and businesses shutter. In May and June, 7.5 million unemployed Americans went back to work, and roughly 70% of that group would have made more drawing unemployment, according to Heidi Shierholz, senior economist and director of policy for the left-leaning Economic Policy Institute.
“Concerns about the work disincentive simply ignore the realities of the labor market for working people, who will be very unlikely to turn down a job for a temporary boost in benefits, particularly when it is now clear that jobs are going to be scarce for a very long time,’’ Shierholz said in a blog post.
“Cutting off the $600 cannot incentivize people to get jobs that aren’t there.’’
Klein of Tufts University agrees.
“This safety net is really important,” Klein says. “The disincentive argument is something to be concerned about in normal times, but these aren’t normal times.”
