Does the Coronavirus extra UI benefit keep people at home?
During the Coronavirus pandemic the people of America face a quandry. Prior to a nationwide quarantine, more and more Americans were finding jobs, going to work and bringing home a paycheck. When the quarantine was put in place, Congress including both Republicans and Democrats agreed to start sending unemployed workers (most of us) an extra $600 per week as part of a national UI (unemployment insurance) package. The legislation written to do this (along with many other things) is known as the CARES Act.
The coronavirus politics that we most hear about, now that many parts of the US economy are trying to re-open, is related to unemployment benefits and how best to help people during the re-open phase or phases. Many politicians and administration officials — including Secretary of the Treasury, Steve Mnuchin, White House Chief of Staff, Mark Meadows, Senate Majority Leader Mitch McConnell among others — argue that the extra $600 per week in the CARES Act is too much. The argument seems to be that more people are making more money staying at home than they would if they went back to work and started earning a paycheck again. This group of politicians tries to use this argument as a basis for lowering the extra UI benefit down to $200 per week, or a total of 70% of pre-quarantine wages.
Unemployment Benefits State by State
Look at the chart below (from The New York Times and Ella Koeze)
There are 18 states (we included Ohio and Texas) where the $600 booster shot to UI falls short of or just barely gives people the same amount of wages they were making BEFORE the Coronavirus quarantine.
POINT: In these 18 states, the extra UI benefit provides no incentive to remain
unemployed or not look for work when jobs become available.
What about the other 32 states? In these states the extra money from the CARES Act does provide more than the average earnings prior to Covid-19. But how much more? Is that extra money enough to keep people at home?
Impact of Extra Unemployment Benefit
Take the most extreme example from the chart above — the state of Maine. According to the data, the extra $600 per week in UI increases unemployment compensation to about 125% of pre-Covid wages. According to Bureau of Labor Statistics data and related salary survey sites, the average weekly earnings in Maine prior to quarantine was approximately $1,200 per week. That average applies across a wide variety of industries and occupations but provides a basis for comparison.
The extra Coronavirus Unemployment Benefit added about $300 per week more than the average wage prior to the quarantine. Its worth noting too that prior to Covid-19, the state of Maine only paid unemployed workers about 50% of their pre-unemployed wages. Based on the earlier numbers, if Covid-19 had not hit the US an unemployed person in Maine would only be receiving about $900 in total. The “extra” $600 brought them up to receiving approximately $1,500 per week during the Coronavirus Pandemic… as long as they were unemployed.
In another example, take the state of Mississippi. Using similar data sources and math, the extra $600 per week gave unemployed workers an extra $130 per week.
Are “extra” benefits enough to keep people at home?
The answer is no. A group of economists at Yale University looked at similar data to what we used above, along with a lot more people- and household-specific data. There does not seem to be any relationship between the extra unemployment benefit being paid, and how quickly people return to work. (You can find the Yale study at this link.)
This chart is taken directly from the Yale study. We added the bolder red line to show you what each segment would look like if people are actually going back to work as the economy gets going again.
As the economy opens back up, we generally see the unemployed returning to work no matter how much “extra” the $600 UI booster provides. The colors of the chart lines are created using a “replacement rate” which shows how much the $600 adds to people’s unemployment benefit.
POINT: If the extra $600 per week was enough to keep people at home, then all of these lines would be either flat or declining as jobs open and businesses look to hire more workers.
POINT: THERE IS NO EVIDENCE TO SUGGEST THAT THE EXTRA $600 IS KEEPING PEOPLE AT HOME AND NOT RETURNING TO WORK WHEN THEY CAN
Republicans are wrong.
There is no basis in facts or real data to argue that the extra UI benefit due to Coronavirus provides any incentive for people to stay at home and not go back to work. Their basis for making these statements appears to be purely anecdotal or based on repeating what someone else says. The data and expert analysis show otherwise.
In addition a few other factors can come into play:
- If an unemployed worker talks to a former employer about coming back to work, and refuses the or a job, then that worker can and should be disqualified from receiving any unemployment compensation from that point forward. People who refuse to come back to work, should be reported to their workforce office or related state unemployment office.
(See your own state's policies and rules. Governor Abbott of Texas recently granted an exception, if you have a valid reason for not returning to work. Each state has slightly different rules and regulations.)
- Most people are honest and will report they refused a job offer. And their former employers who are paying for their unemployment compensation are well aware that their former employees may no longer receive unemployment benefits.
- Comments have been made that “…unemployment is supposed to be wage replacement, so it should be tied to some percentage of wages.” (Mr. Mnuchin on ABC Sunday, August 2, 2020) This might be true during normal economic conditions like recessions and expansions. But for the Coronovirus Pandemic, this is a wrong-minded argument. During the COVID-19 Pandemic, nothing is “normal”.
- Some percentage or replacement of pre-unemployment wages would be fine — IF PEOPLE KNEW WHEN THEY WOULD BE ABLE TO FIND A JOB OR RETURN TO WORK. The point of the extra $600 per week is to give people their usual or typical wages prior to the quarantine. The economy is not fully out of the quarantine, and with recent spikes in cases, hospitalizations and now deaths, returning to a pre-Coronavirus economy still seems weeks away, if not months!
Continuing to pay the extra $600 per week is the best course of action at this time — based on real data, facts and what we know about the state of the US economy.
And in fact, a Federal Reserve official — Neel KashKari, President of the Minneapolis Fed Bank — says the economy capable of supporting another round of stimulus, including the $600 per week extra UI benefits. (See his quotes and comments here.)
POINT: Congress should act now to continue extra weekly unemployment benefits by at least $600 per week.
Other excellent perspectives on this topic are available at: