What happens to the U.S. economy if federal unemployment benefit ends?
WASHINGTON – When the COVID-19 pandemic first drove the country into lockdown and tens of millions of workers lost their jobs, Congress voted to add $600 a week to whatever individual states paid in unemployment insurance.
That extra money was a desperately needed lifeline for many because state unemployment benefits typically replace less than half a worker’s paycheck. Adding the federal payment on top gave many low-income workers more than they earned before.
Now with the $600 boost about to end, Congress must decide whether to let it die, continue it or cut back the payment levels. Recent negotiations suggest lawmakers on both sides are open to extending only reduced or a more restrictive version of the payment.
Most Republicans argue that the present system encourages workers to remain on unemployment rather than go back to work.
Ending or slashing the federal payments would help employers and investors by pressuring many of those employees to go back to work.
But maintaining the extra unemployment payments at or near present levels would help millions of workers keep paying their rent, writing mortgage checks, making car payments and caring for families. That’s especially true right now, when the pandemic is getting worse in many parts of the country and local officials are moving to restore lockdown rules they had begun to relax when the danger seemed to be fading.
In addition to helping the jobless, keeping the extra payments at or relatively near the current level would provide a substantial boost to an economy still reeling from the impact of COVID-19. Conversely, abolishing or slashing the federal payments would undercut the economy.
Basic unemployment insurance payments are determined by each state. During the first quarter of this year, they averaged $373 a week. The additional $600 a week was part of Congress’s $2.2-trillion relief package known as the CARES Act and passed in March.
Beyond anecdotal reports of employers struggling to recall workers, one of the few attempts to measure the extent of the problem was a May 18 survey by the National Federation of Independent Business, a smallemployer lobbying group. It reported that 18% of 685 respondents said an employee had declined a job offer in order to stay on unemployment benefits.
“Even in the best situation hiring is often a difficult process. But when there’s competition with a government program, it’s even more challenging,” said Holly
Wade, director of research and policy analysis at NFIB.
In northern Maine near the Canadian border, Michael Collins said he is trying to bring back dinein service at his Arby’s franchise in Presque Isle. Maine has been doing better than most other states in controlling COVID-19, and unemployment has dropped back down to 6.6%, compared to 11.1% for the nation.
But Collins has rehired only one of six employees he furloughed months ago. The other five, Collins said, told him, “Why would I come back when I can make more sitting at home?”
If the $600 benefit is cut back, he said he hopes more will want to return.
One of the things that’s clearly changed since mid-may is that the health crisis – and with it the economy – has taken a turn for the worse.
Since early this month, small business openings and revenues, as well as new-job postings, have turned sharply down, according to Opportunity Insights, a nonpartisan group based at Harvard that is tracking the economic effects of the pandemic.
Before this month began, “I would have said, ‘Maybe we should back a little off $600. There’s enough evidence of new hiring activity that the $600 might be just too much disincentive for too many people,’” said Harry Holzer, public policy professor at Georgetown University. “Now with the hiring slowdown, I would rather err on the other direction” to offer more help for people.
If Congress ends or makes a sharp cutback in the special unemployment benefit – Senate Republicans are said to be considering $200 to $400 a week – many economists worry that it’ll take billions of dollars out of the economy at exactly the wrong time.