Senate Republicans want to ditch the $600 weekly add-on to state unemployment benefits that they ratified in March to support laid-off workers through the Covid crisis. In its place, they’ve proposed a benefit guarantee of 70 percent of prior wages.
That’s a terrible idea. We know that because Senate Republicans told us so four months ago.
Remember March 2020? That’s when Congress assembled the first coronavirus relief bill. Covid-19 cases in the United States were rapidly approaching 100,000, with 3,000 Americans dead from the virus and roughly 20,000 new cases emerging each day. Unemployment was rising to 4.4 percent. Something had to be done!
So Congress passed the Cares Act, which President Donald Trump signed into law. Among its provisions was the weekly federal sweetener to state unemployment benefits of $600.
Now it’s July 2020. Covid-19 cases in the U.S. number not 100,000 but 4.2 million, with not 20,000 but 62,000 new cases being added daily. Unemployment is not 4.4 percent but 11.1 percent as of June, and it’s likely climbing higher now. And Senate Republicans want to take the $600 weekly sweetener away.
At the risk of belaboring my point: The coronavirus health crisis is about three times worse than it was in March. We’re seeing three times as many new cases daily, and unemployment is nearly three times higher. Covid-19 cases are increasing in 43 states. All this suggests that the $600 weekly add-on is an even more necessary lifeline today than it was four months ago.
Back in the March debate over the Cares Act, Senate Democrats, led by Minority Leader Chuck Schumer, initially pushed to guarantee that unemployed people would receive 100 percent of their wages. (Before the pandemic, state unemployment benefits replaced about 40 percent of wages on average, with substantial variation among states.)
That was a nonstarter, Labor Secretary Eugene Scalia explained. The states won’t be able to handle the calculations for individual recipients. Computer systems for state unemployment offices are too old and cranky!
So that’s where the consensus figure of $600 to boost weekly jobless benefits came in. Democrats and Republicans in Congress settled on $600 as the number approximating the difference between the average worker’s wage and the average state unemployment benefit.
Now GOP senators are proposing to replace the recently expired $600 weekly add-on with an outlay covering 70 percent of wages (up to a ceiling of $500). It’s as if Scalia had never spoken. Calculating 70 percent of wages is no easier for old and cranky state computer systems than calculating 100 percent would have been.
When I asked the Labor Department whether these state computer systems had over four months gotten significantly less old and cranky, it basically said yes.
“Back in March,” a Department of Labor spokesperson explained, “state U.I. computer systems were not in a position to quickly make the necessary changes to provide benefits to match wages.… [But since then] states have spent more than $150 million improving and upgrading their I.T. systems in response to the Cares Act. Based on recent conversations with states, we believe the enhancements … will provide most states sufficient time to transition to a wage replacement model.”
I’ll believe it when I see it.
Meanwhile, computers aren’t the only problem. As Michele Evermore, a senior policy analyst at the National Employment Law Project, explained to me, there are administrative obstacles too. Within any given state, the percentage of wages replaced by unemployment benefits will shift based on other administrative and analytical variables that must be taken into account.
Georgia labor commissioner Mark Butler, a Republican, calls the GOP plan “the dumbest idea ever,” according to Bloomberg’s Ben Penn. “We’re not the IRS,” Butler explained. “We don’t have your taxes. We don’t know what you made last year. Our stuff is based on you getting laid off by a particular employer and them reporting to us about what the wages are.”
It’s doubtful that Senate Republicans seriously expect state unemployment offices to be up to the task of replacing 70 percent of wages. Their bill allows states to delay implementing that requirement until October 5 and then to delay it again until December 5—by which time Election Day will have come and gone and the 70 percent replacement program will be a mere three weeks away from its December 31 expiration.
Under the Senate Republican plan, states that are unable to figure out how to replace 70 percent of unemployed workers’ wages will be given the option to add $200 to weekly benefits instead—though even if the bill were to be signed into law tomorrow, Evermore says, it “would still take states two weeks” to get “back up and running” computer programs that had been shut down after delivering the last $600 checks.
In practice, then, Senate Republicans propose to address a health crisis that’s gotten three times worse by cutting a vitally important unemployment benefit by two-thirds. Adding a Dickensian touch, White House economic adviser Larry Kudlow said on Fox News that the package will also double from 50 percent to 100 percent the “three-martini lunch” tax deduction for business meals. I wouldn’t be surprised to see this video clip in a Biden campaign ad.
Cutting benefits to one-third to fix a problem that’s gotten three times worse sounds like an arithmetic error, but it isn’t. The GOP is alarmed by studies showing that most workers eligible for unemployment assistance can get more money collecting benefits than from working. That’s true for fully two-thirds of these beneficiaries, according to one University of Chicago study. The reason is that although $600 would bring unemployment benefits even with wages for the average worker, the workers losing their job in the Covid-19 pandemic aren’t average: They earn less than the average wage, in many cases because the federal hourly minimum wage is a paltry $7.25. Consequently, when they lose their jobs, they get a raise.
In ordinary times, being able to earn more on the dole than from working would probably at some point become a problem. An excellent solution would be to raise the federal hourly wage minimum to $15. As Scalia has noted, the $600 weekly benefit is equivalent to what you’d get working 40 hours at $15 per hour. Trump hinted earlier this month that he would soon propose a minimum-wage increase, but he never followed up. (Perhaps Kudlow, who doesn’t think there should be any minimum wage at all, got to him.) Even if Trump were to propose the hike, it’s hard to see Senate Republicans allowing it.
So if the $600 benefit were to be extended, the laws of economics dictate that workers would refuse to return to work because life is just too cushy on the dole. Or so the GOP claims.
In truth, such workers are merely hypothetical. Oh, sure, there are some living, breathing workers who think that way. We’ve seen a few quoted in news accounts. But, as I’ve noted here before, the proof that no significant number feel that way was the drop in unemployment recorded in May and June. If anything, probably too many people returned to work during those two months, because most workplaces continued to pose a serious health risk, as they do today.
A string of studies has shown that when you look at the behavior of actual humans, as opposed to economic models, the $600 benefit is not increasing unemployment. The latest, an inquiry led by Yale economist Joseph Altonji, found that workers who received more in unemployment benefits relative to their wages returned to work at either the same rate or a slightly higher rate than workers who received less.
Economically, the $600 sweetener is one of the few federal policies sustaining the economy during a recession that threatens to turn into a full-fledged depression. According to the Economic Policy Institute, ending the add-on in the name of boosting employment would have precisely the opposite effect, eliminating five million jobs.
But as things stand now, Senate Republicans won’t budge, and it’s hard to imagine House Democrats closing ranks to save the $600 benefit. (Indeed Majority Leader Steny Hoyer has already indicated his caucus will punt it in negotiations with the GOP.) The net result may be that an unemployment benefit created to address an emergency will be cut entirely while the emergency gets worse. In that scenario, the only silver lining is that voters will have the chance to voice an opinion about all this come November.