A $600 disincentive to keep working
Special to The R-C
Included in the massive $2.2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act is a large new unemployment benefit that tacks on an additional $600 per week through July 31. This new federal payment is being distributed atop existing state unemployment (UI) benefits.
The intent of this expansion is two-fold: to help people stay financially afloat during the economic shutdown, and to keep them at home.
About half of laid off workers will receive more money in unemployment checks than in their previous or future paychecks. The $600 boost when added to state unemployment benefits raises average weekly benefits to $978 from $378, according to the Labor Department. Labor statistics also show half of full-time workers earn $957 or less each week.
The federal government is offering an extra $15 per hour unemployment benefit ($600 per week divided by 40 hours) on top of regular UI benefits. Layoffs are encouraged as employers recognize that employees will be better off receiving government assistance. It also undermines economic recovery as this work disincentive applies to millions of Americans.
As a result, why would an “essential” worker in the health, food prep, grocery businesses take a job for less than $22 per hour while putting their health at risk? Why would anyone take a pay cut to go back to work? These workers aren’t lazy, they are making rational decisions based on the economic incentives politicians have created.
No matter when governor’s announce state “reopenings”, many businesses will need to wait to July 31—when the extra $600 expires—to be able to afford workers needed to reopen.
House Democrats have voted to extend the $600 benefit until January 31, 2021, with Speaker Nancy Pelosi calling Republican Senators Ben Sasse (Neb.), Lindsey Graham (S.C.), Tim Scott (S.C.) and Rick Scott (Fla.) “cruel” for speaking out in opposition to this provision.
Rather than incentives not to work, if workers are safely able to return before these supplements expire, the unemployment benefits could better be used to promote employment. This outcome would be achieved by permitting the $600 to be paid as a “reemployment bonus” divided equally between the individual coming off unemployment and their new (and often former) employer.
Simply , both new employee and new employer would both receive $300 per week for every week they are employed through July 31. Everyone wins under this approach— the employee, employer and taxpayers– as unemployment benefits would be replaced by paychecks.
Among those who consider the $600 increase in federal jobless benefits an economic blunder is Republican Senator Mitt Romney (Utah). As a replacement, he proposes another alternative– “hazard pay” for workers on the front line of the pandemic .
Romney’s legislation would better compensate health-care workers, grocery store and other essential personnel by boosting their pay by up to $12 per hour for the next three months, a bonus that could be as much as $1,920 a month.
Meanwhile, Democrats are rallying behind a plan to dramatically expand support during the coronavirus crisis. Democratic Senators Kamala Harris (Calif.), Bernie Sanders (Vt.), and Ed Markey (Mass.) are proposing a “big idea”: pay most American families thousands of dollars each month until the coronavirus economic crisis subsides.
Their legislation would send a $2,000 check to people making less than $120,000. It would expand to $4,000 for married couples and also provide $2,000 for each child up to three.
But the Congressional Budget Office has some sobering news. The combination of collapsing revenues from the economic lockdown and soaring spending to fight the coronavirus will produce a deficit of $3.7 trillion in this fiscal year—that’s if Congress doesn’t pass another big spending bill.
Before spending more immediately, let’s pause and see how well the economic “reopening” goes. The sooner the economy gets growing, the lower the cost to us all.