Extended unemployment benefits would pay most workers more than employers: CBO
Policy will have positive near-term effects on U.S. output, but will reduce employment over the coming years
About 42 million Americans have filed jobless claims since mid-March, but some may be earning more money via expanded unemployment benefits than they would be on the job.
New data from the Congressional Budget Office on Thursday shows that five out of every six workers would receive an unemployment benefit under the CARES Act that exceeds 100 percent of the weekly amounts they can expect to earn from working if the policy were extended an additional six months.
The $600 increase is set to expire on July 31.
CORONAVIRUS UNEMPLOYMENT BUMP IS ‘INCOME EXPANSION,’ PAYS THESE WORKERS MORE THAN THEIR JOBS
In a letter to Senate Finance Committee chair Sen. Chuck Grassley, R-Iowa, who requested the analysis, researchers wrote that while spending would likely be greater over those six months, employment would be lower throughout the remainder of the year and into 2021. That’s because workers would have less of an incentive to return to their jobs.
The good news is that the extra $600 increases demand among unemployed workers, which increases overall U.S. output. But a reduction in labor supply may outweigh those demand benefits the following year.
The CBO projects the unemployment rate in the third quarter will be 16 percent.
Over the long term, researchers also say businesses could replace workers with machinery as a means to use less labor.
In a statement on Thursday, Grassley said the proposal encourages government dependence.
"That’s unhealthy for the economy and it’s unhealthy for the individual," Grassley said. "As we begin to safely re-open our economy, it should be the goal of Congress to get America back to work, while helping those who can’t in a more targeted and efficient way."
REPUBLICANS RAISE RED FLAG OVER EXPANDED UNEMPLOYMENT BENEFITS
A previous study conducted by researchers at the University of Chicago, which did not account for a policy extension, found that benefits for 68 percent of workers would exceed earnings. Additionally, the median replacement rate for about 20 percent of people is 134 percent.
Under the CARES Act, eligible Americans who are out of work entirely or underemployed because of reasons related to coronavirus can receive an additional $600 a week for up to four months.
The maximum amount of unemployment individuals can receive each week varies from state to state. In New York, where the virus has taken a big toll on residents, the maximum benefit is $504, so the max payment is $1,104 under the new program.
In New Jersey, the maximum payment with the extra $600 is $1,313, and it is $1,390 in Washington state.
For many restaurant workers, the federal payment means they could make more not working. The average restaurant worker earns around $500 a week.
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The expanded benefits have posed a problem for small businesses looking to rehire workers – which is a necessary provision for PPP loan forgiveness, as well.
Republican leadership has expressed opposition to continuing the policy, while some Democrats have proposed extending it. The Senate is expected to hold a hearing on the topic next week.