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The $600 Question: How Lawmakers Should Approach Unemployment Insurance

Emergency expansions of unemployment insurance have been a central part of America’s response to the COVID-19 pandemic and its ensuing economic crisis. With one component of that expansion—an across-the-board, $600 increase in weekly benefits—set to lapse at the end of July, lawmakers must soon decide whether to allow it to expire, extend it, or otherwise alter it going forward.

As local officials begin to relax stay-at-home orders and the country pivots from crisis to recovery, public policy must also transition from providing relief to rebuilding the economy. Accordingly, when and how to scale back the emergency UI expansions are among the most important decisions that Congress faces over the coming months. While UI benefits must continue to provide robust relief to those who are unable to work for reasons related to COVID-19, the program should also be modified in a way that incentivizes work.

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1.) UI Should Continue Providing Robust Relief in Response to the Crisis

The COVID-19 pandemic poses unprecedented workforce challenges that the regular UI program is not designed to handle. Government-enforced stay-at-home orders implemented to contain COVID-19 have led to shuttered businesses and tens of millions of layoffs and furloughs. Although employment rebounded somewhat in May, the unemployment rate remained historically high at 13.3%, and at best, the labor market is only at the beginning of a long road to recovery.

Personal health and family caregiving challenges have compounded these labor market woes. As a result, an unprecedented share of adults is either out of work or facing reduced income, often with no opportunity to seek—or little prospect of finding—further employment in the near term. With modest monthly benefits and a requirement that recipients look for work, UI is traditionally designed to support and encourage the transition of laid off workers into new jobs, not provide relief to those displaced from work for non-economic reasons.

The emergency expansions to UI enacted under the CARES Act are crucially filling these gaps, providing financial assistance to workers who have been impacted by COVID-19 and temporarily displaced from their jobs due to no fault of their own. The additional $600 weekly benefit is helping families make ends meet in an environment where the virus and policies to combat it have eliminated many reemployment opportunities. These additional benefits have also facilitated compliance with stay-at-home orders, protecting personal health and mitigating the spread of COVID-19. Importantly, the CARES Act also expanded UI eligibility to include self-employed workers and independent contractors, furloughed workers, and those who quit their jobs or are unable to work for reasons brought on by COVID-19.

With the public health and economic outlook highly uncertain, there is a clear need to continue providing robust support to households that have lost wages. Come August, benefits should remain elevated from their standard level to account for the fact that COVID-19 and the policy response to it has curtailed any chance for many dislocated workers to search for or find new jobs in the immediate future. Moreover, even after stay-at-home orders are lifted, vulnerable populations may be unable (or feel that it is unsafe) to return to work and child care will likely remain an issue. Thus, lawmakers should continue to use UI as both a tool to protect public health and provide economic relief.

2.) Weekly Benefit Levels Should Still Encourage Work

Because the CARES Act increased all weekly UI checks by $600, individuals now often collect more than they previously earned. In fact, a recent University of Chicago study finds that two-thirds of eligible unemployed workers can now collect more from UI than their previous salary, and one in five can collect twice as much. As a result, the current benefit design, if continued, could become a barrier to repairing the labor market and rebuilding the economy as the health crisis recedes. Although it’s reasonable to assume that the majority of those currently unemployed will seek to rejoin the workforce as soon as possible, as evidenced by the May jobs report, the higher unemployment benefit could deter some from doing so. Indeed, the Congressional Budget Office anticipates that extending the additional $600 benefit until January 2021 would depress employment over the next two years.

Thus, lawmakers should not enact a blanket extension of the $600 supplementary weekly benefit. Instead, as the country transitions to recovery and the economy reopens, weekly unemployment benefit levels should be scaled back so that those currently unemployed are further encouraged to look for and accept offers to work.

Additionally, lawmakers should not tie the supplemental $600 weekly benefit to the unemployment rate, as some have proposed. Since the additional $600 per week discourages work, keeping it in place until unemployment declines significantly would risk deterring some individuals from going back to work, depressing employment, and prolonging the economic downturn.

3.) Use Eligibility Criteria to Keep Workers and Employers Connected

Providing unemployment benefits to furloughed employees, as allowed by the CARES Act, has helped many dislocated workers maintain a relationship with their employers. The CARES Act also expanded Short-Time Compensation, which allows workers to collect prorated unemployment benefits if their hours are cut. This could give employers more flexibility to reduce payroll costs by reducing hours rather than permanently laying off workers. These expansions should remain in place for some time, as they will continue to play a catalytic role, allowing some employers to easily restore hours or recall workers as the public health situation improves and labor markets around the country gradually heal.

Meanwhile, lawmakers should begin to consider how to appropriately scale back other new provisions that allow recipients to collect unemployment benefits even if they are not looking for a job. In particular, the CARES Act created a broad set of circumstances in which individuals who leave the labor force for reasons tied to COVID-19 are eligible for unemployment benefits. These are major shifts from regular UI, which requires recipients to have been laid off due to no fault of their own and to seek employment while collecting benefits. Especially in combination with the supplemental $600, these expansions to UI could serve as a barrier to economic recovery if they are not scaled back as businesses reopen.

4.) Prioritize the Modernization of UI Administrative Systems

This economic crisis is revealing that many state UI systems have long been brittle and ineffective. Indeed, lawmakers chose to adopt a flat $600 weekly benefit increase because state UI systems were incapable of administering a more sophisticated approach. Even so, state systems are struggling to implement program expansions and are overwhelmed, causing dislocated workers to wait for their benefits. While an unprecedented spike in UI claims could understandably stress even the best-prepared systems, outmoded administration has severely hampered the government’s ability to quickly provide financial relief and expand the program in a way that still rewards work. The current crisis has made clear that Congress and state policymakers must make modernizing state UI systems a top priority so that benefits can be rapidly and effectively deployed, especially during moments of economic turmoil.

Conclusion

The UI expansions under the CARES Act must be modified to balance economic relief with recovery. Scaling back too soon risks prolonging the public health crisis and worsening the current economic hardship. Yet, keeping expanded benefits in place indefinitely would make it even harder to rebuild the labor market and economy. In the coming weeks, BPC will be suggesting additional solutions to help policymakers modernize and structure the UI program in a way that advances public health and economic growth.

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