Congress is tussling over the $600 weekly addition to unemployment benefits that expired Friday, forcing millions over a financial cliff. Congress needed to act back then, but not with the $600 solution. Now, many argue we should extend this same flawed plan. Here’s why we shouldn’t, as well as a better solution.
The March CARES Act provided $600 a week additional pay to offset the difference between unemployment and working pay because of the coronavirus pandemic. Remember, this is the problem being solved. It wasn’t meant to be a welfare program, otherwise those employed would have received benefits, as well.
The concept is simple. Someone making $15 an hour while employed could survive on $15 an hour unemployed. If the rate isn’t a living wage, we should do something about it, but not with this act. Our focus here is to keep those unemployed whole.
But Congress had a problem.
Most states couldn’t program their antiquated computers to compare benefits with a recipient’s previous wage.
Additionally, unemployment isn’t equal in all states. Arizona caps it at $240 a week. In West Virginia, it’s $424, yet, in the state of Washington, it’s $749.
So, Congress compromised on $600 per week to get it out there.
But this compromise, besides being too much, didn’t include a permanent solution. Instead it encouraged many to stay on unemployment, rather than return to work.
If you thought the “available to work” rule meant a worker must return to work when requested or lose their unemployment, well, it was suspended for the first three months of the pandemic. It is now rescinded.
Nonetheless, this is how the math worked then.
Most state unemployment rates are 60% of a worker’s pay. Someone earning $15 an hour receives $9 an hour on unemployment. The $600 bonus then added $15 an hour for a total of $24 an hour on unemployment versus $15 working pay. Note, the lower the working pay the higher the difference.
So, many chose unemployment over a return to work.
I assume you’ve heard that argument before.
It’s true. I saw it as a business consultant. It’s also true that some gave up additional pay and returned out of loyalty. And it’s true that under the now reinstated “return to work” rules, many employers do not report refusals to work to unemployment because of their loyalty to workers.
However, $600 a week is too much. That means anyone earning up to $78,000 per year (2,080 hours multiplied by $37.50) will be paid more on unemployment than working. If Congress had chosen $400 at week, the break-over point would have dropped to $52,000 a year, and $200 would have dropped it to $26,000.
How much did that cost?
Multiply June’s 17.8 million unemployed by $600 a week and you get $10.68 billion.
So, the state benefit of 60% would be $14.85 an hour with $15 being added as a bonus for a total of $29.85, or $5.10 an hour more than their working pay.
That amounts to $1.18 billion over 13 weeks (three months) using June’s numbers. April and May were higher.
That created an obvious and avoidable problem. Not only was the payout too much, it created an arbitrary end of July 31, with the pandemic still in full force.
What can be done? Enact $400 a week as a temporary benefit, down from $600, for a period of three more months. Then, immediately fund the upgrade of computers to be able to calculate the percent of working pay.
Then phase out the $400 a week and replace it with 100% of working pay. Then, gradually reduce that to 70% as life returns to normal.
Then, we won’t be facing this same dilemma four months from now. And if supplemental income is needed, let’s use something other than unemployment to do so.