/The $600 unemployment boost has ended. What’s next?

The $600 unemployment boost has ended. What’s next?

U.S. Senate Majority Leader Mitch McConnell (R-KY) arrives as Senate Republicans hold their weekly policy lunch on Capitol Hill in Washington, June 16, 2020.

Jonathan Ernst | Reuters

The $ 600 boost in weekly unemployment checks ends Friday.

With negotiations between Democrats and Republicans at an impasse, millions relying on that aid are in the dark as to what comes next.

Meanwhile, the economic recovery appears to have stalled or reversed, coronavirus infections are surging, eviction protections have expired for many and plans to reopen schools remain in flux, potentially requiring many parents to forgo work for child-care duties.   

“It’s not clear we’re on a very clear trajectory out of this economic downturn,” said Beth Akers, a senior fellow at the Manhattan Institute for Policy Research and a former staff economist on President George W. Bush’s Council of Economic Advisors. “So I’m very concerned for when we take away the $ 600 from unemployed people.”

‘Can’t make a living’

Americans are guaranteed to lose the weekly subsidy, at least temporarily, after Friday. The Senate adjourned for the weekend without an agreement to extend or replace it after July 31.

Given the scale of the problem, with roughly 30 million Americans collecting unemployment benefits, it’s likely lawmakers will pass some sort of additional aid, according to experts.

More from Personal Finance
Republican senators propose $ 1,000 stimulus checks
America faces an unprecedented eviction crisis
Unemployment aid will fall by 93% for some

“It’s more a question of how much it will be and how long it will take,” said Till von Wachter, an economics professor at the University of California, Los Angeles and director of the California Policy Lab.

Absent a federal supplement, the average American would get about $ 321 a week from state unemployment programs â€” less than half of prior earnings.

It’s hard when you’re already living your life on bare bones.

Artavia Milliam

unemployed worker in New York

That situation would hit low-wage workers — who are already more likely to be living paycheck to paycheck and represent a disproportionate share of the unemployed â€” particularly hard.

“You can’t make a living as a low-income worker making 50% of your prior earnings,” von Wachter said.

Between $ 200 and $ 600

The $ 600-a-week supplement to unemployment benefits has been a hot-button issue since a federal coronavirus relief law, the CARES Act, enacted the payments in late March.

The tension comes from some recipients being able to collect more from unemployment benefits than they earned from their jobs.

Republicans have unified against the $ 600 weekly enhancement, believing it to be a disincentive to return to work and therefore a drag on the economic recovery.

Democrats want to extend the payments, saying they pump money into the economy and help American families pay their bills. The House passed legislation in May to extend them through early 2021.

Senate Republicans unveiled a proposal this week to reduce aid to $ 200 from $ 600 a week through September. In October, they’d shift to a system where federal and state benefits replace 70% of a person’s lost wages, which would be in place through year-end.

It’s likely lawmakers will meet somewhere in the middle, economists said.

“I think that’s where people have put their stakes in the ground right now,” von Wachter said.

‘Bare bones’

Many families would likely still see financial hardship with a payment of $ 200. That would give Californians up to $ 650 a week in total benefits, for example. But $ 650 is less than the threshold for being considered “very low income” in this country, von Wachter said.

“It’s hard when you’re already living your life on bare bones,” Artavia Milliam, a recipient of unemployment benefits in New York, said during a House Ways and Means Committee press conference on Friday. “We just want to survive until we get through the crisis.”

The $ 600 supplement reduced food insecurity by 30% and led to a 42% reduction in eating less due to financial constraints, according to a paper published Thursday by academics at Boston University and the University of Pennsylvania.

And prospects of finding a new job are dim. There are about 14 million more unemployed people than job openings right now, according to the Economic Policy Institute.

“I’m not losing sleep over people getting an extra $ 600 a week right now because I think there are a lot more people looking for jobs in the economy right now than there are jobs available,” Akers said.

Wage replacement

A wage-replacement approach like the one suggested by Republicans is the ideal approach, but is also unlikely to materialize within their timetable, according to labor experts.

At the onset of the pandemic, lawmakers broached the idea of capping a subsidy, at 100% of lost wages. But antiquated state technology made that an impossibility in short order.

Speaker of the House Nancy Pelosi, D-CA., and Senate Minority Leader Chuck Schumer, D-NY., speak to reporters following a meeting with U.S. Treasury Secretary Steven Mnuchin and White House Chief of Staff Mark Meadows on July 30. Congressional leadership and White House officials are continuing negotiations on a new relief package for Americans affected by the coronavirus pandemic and the economic recession it has caused.

Photo by Samuel Corum/Getty Images

The $ 600 was a compromise: when combined with typical state-paid benefits, the federal subsidy aimed at fully replacing lost wages for the average jobless person (about $ 976 a week in the first quarter).

It’s unlikely all states would be able to administer such a policy within the next few months, economists said.

One compromise may be a flat amount ($ 200 to $ 600) that transitions to a system replacing perhaps 70%-100% of prior wages over a longer time period like early next year, von Wachter said.

Lawmakers can offer states a financial incentive to update their technology. That could take the form of offering extended federal funding to pay benefits for the self-employed, freelancers and others being covered by the Pandemic Unemployment Assistance program, he said.

Another option might be phasing out a flat payment over time as a state’s unemployment rate improves, Akers said. Some Senate Democrats have proposed such an approach.

While some people “on the margin” may be choosing not to return to work because of the $ 600 checks, there’s also been evidence that payments haven’t had a big impact on the labor market, Akers said.

“Evidence suggests that employers did not experience greater difficulty finding applicants for their [job] vacancies after the CARES Act, despite the large increase in unemployment benefits,” according to a paper published Thursday by economists at the University of Pennsylvania, the Federal Reserve Bank of New York and Glassdoor Inc.

Economists at Yale University also didn’t find evidence that generous benefits offered a disincentive to work “either at the onset of the expansion or as firms looked to return to business over time,” according to a paper published this month.

Let’s block ads! (Why?)

Personal Finance