Congress Should Scale Back The $600 Unemployment Bonus
To help fight the Pandemic Recession, Congress temporarily made unemployment benefits more generous. Too generous, in fact. Eligible workers can receive $600 per week from the federal government on top of their regular state-provided benefit.
This program expires at the end of July. What should Congress do?
It would be a mistake to continue the benefit in its current form. But it would also be wrong to let expanded unemployment checks expire completely, in part because U.S. cases of coronavirus are rising, and some states are reinstituting social-distancing measures.
The $600 weekly payments were approved as part of the $2 trillion Cares Act, which was passed on March 27 to help support the economy during the Covid-19 disaster. They have been controversial from the start.
Standard state unemployment benefits averaged $321 across the nation in May. The $600 federal supplement brought total benefits up to $921 per week on average, or nearly $50,000 on an annual basis. Economists Peter Ganong, Pascal Noel and Joseph Vavra estimate that 68% of unemployed workers who are eligible for payments saw their income go up relative to what they were making while employed. For one out of five unemployed workers, the benefits were twice as large as previous earnings.
Taxpayer dollars shouldn’t be used to raise the incomes of the majority of unemployed workers above what they were earning on the job. That said, benefits this generous did much less damage to the economy during the shutdown than they would under normal circumstances. Unemployed workers weren’t discouraged from getting new jobs because there weren’t new jobs to get.
And because workers had income support from the government when stores and restaurants began to reopen, consumer spending roared back in May, increasing by 8.1% over the previous month, an extraordinary jump. The personal savings rate in May was a stunning 23.2%. Economists Jeehoon Han, Bruce D. Meyer and James X. Sullivan find that government programs during the Pandemic Recession actually lowered the poverty rate by 21%.