In less than a week, the extra $600 in federal weekly unemployment benefits Americans have been collecting during the recession will come to an end for about 25 million out-of-work adults — a plunge off an "income cliff" that could imperil their ability to pay rent and other bills.
Such a sharp drop in income could be "disastrous" for many families who depend on the supplementary aid to keep afloat during the coronavirus pandemic, said Michele Evermore, senior policy analyst at the National Employment Law Project. Instead, unemployed people will be forced to make ends meet on their state's regular unemployment benefits, which typically replace less than half of a worker's wages.
Most workers will receive their last week of extra jobless benefits this week, despite the Coronavirus Aid, Relief, and Economic Security, or CARES, Act set July 31 as the final day for paying the additional $600 in weekly benefits. But states that disburse their unemployment benefits on weeks that end on Saturdays or Sundays will end the extra benefits.
When that happens, jobless workers could face a benefit cut of as much as 85%, depending on which state they live in, according to an estimate from Andrew Stettner, senior fellow at the Century Foundation and an expert on unemployment policies.
Take a worker in Mississippi, which has the lowest average weekly unemployment benefit of all 50 states. After the extra $600 in weekly pandemic aid ends on Saturday, the typical worker's benefits will plunge from about $812 per week to $212 — a roughly 75% decline.
"Who is going to spend money?"
Even in the most generous states, workers are set to experience a steep drop-off in benefits. If they pare spending to offset the hit to their income, that could provide a shock not only to household budgets but also to local economies.
"What's going to happen then with all that uncertainty — who is going to spend money?" Evermore said.
Some of the 10 states where workers face the steepest drop in benefits are presidential battlegrounds including Michigan, Ohio and Pennsylvania, Stettner said. The typical benefit will drop by about two-thirds in each of those three states, declining to an average of $328 per week in Michigan, $364 per week in Ohio and $408 per week in Pennsylvania.
Congressional Republicans are this week negotiating terms of another stimulus package, which could include an extension of enhanced federal unemployment benefits. But many Republicans have pushed for a reduction of the $600 benefit because of concerns that some workers are earning more on unemployment than at their jobs, which some lawmakers say discourages them from returning to work.
One hint of what could be in the works comes from the U.S. Chamber of Commerce, a lobbying group for businesses. It's pushing for a maximum of $400 in extra weekly jobless benefits, which it says would replace about 80% to 90% of a typical worker's wages while keeping benefits low enough to entice people to return to their jobs.
Weeks without extra benefits?
Even if Congress passes a new stimulus package by the end of July, there's likely going to be at least a two-week gap until those extra benefits reach the nation's 25 million unemployed workers, Evermore said. That's because states will need to reprogram their computers to input the new dates for the extra pay, agiven that many rely on outdated computer systems.
The gap in benefits could last as long as four weeks if the extra payments expire this month and then are reinstated by Congress, according to Heidi Shierholz, senior economist at the left-leaning Economic Policy Institute. It's unclear whether Congress would include a provision to pay workers retroactively for the missed weeks of pay.
Among those urging lawmakers to extend the extra $600 in benefits are former Federal Reserve chiefs Ben Bernanke and Janet Yellen. In a Congressional hearing on Friday, Yellen said it would be "a catastrophe" if the benefit wasn't extended, while Bernanke pointed out that the pay helps the overall economy.
"The other purpose of the unemployment insurance is to increase aggregate demand," he said. "People will go out and spend and that will help the economy generally."
"The labor market is a mess"
The notion that the extra jobless aid provides a disincentive to return to work has been met by skepticism from some economists, including Mark Zandi, chief economist of Moody's Analytics. His group has looked at the relationship between unemployment aid and the nation's jobless rate, and hasn't found a connection that suggests many workers are snubbing work to remain on the dole.
That's likely due to two factors: First, people who turn down "suitable work" — such as an offer to return to their job after a furlough — risk losing their unemployment benefits. Second, the labor market recovery appears to be stalling as a surge in coronavirus around the U.S. forces states to pause their reopening plans, with employers cutting job listings in recent weeks, employment site Glassdoor has found. That could make it tougher for jobless Americans to find new work.
"The labor market is a mess," Zandi said in a recent conference call with reporters. "The labor market is really in disarray, so it's hard to argue that people aren't going back to work in a big way because of these disincentive effects."