BPC Analysis Finds Massive Drop in Wage Replacement Rates as Expanded Unemployment Insurance Expires
Washington, DC – A new BPC analysis of publicly available data finds that the expiration of enhanced unemployment insurance benefits has resulted in a nearly 90 percentage point decrease in the wage replacement rate for a median-income unemployed American worker. Reintroducing the $600 supplement without modifications, however, would result in the median-income unemployed worker continuing to receive weekly benefits equivalent to 138% of their previous earnings, with lower-income unemployed workers in many states collecting more than twice as much as their counterparts still in the workforce.
These findings further underscore the need for Congress to negotiate a compromise on expanded UI benefits, a key part of the discussions underway on the next round of COVID-19 relief.
BPC recommends establishing the weekly federal supplement at $400 for the coming months to provide workers with substantial financial assistance, while beginning to rebalance incentives toward work. Pairing this extension with another round of Recovery Rebates (“direct payments”) would ensure that most households on UI do not face any significant change to their financial circumstances and that the economy does not face a large drop in demand at a time of ongoing weakness and uncertainty. And as our analysis shows, the median worker would continue to receive weekly payments slightly higher than their pre-pandemic wages for the next couple months.
Negotiators on both sides of the UI debate have empirical support, but 30 million displaced Americans—not to mention the U.S. economy—cannot afford to wait any longer. Congress must prioritize reaching an agreement promptly to support struggling households and ensure the long-term health of the economy.