The federal unemployment insurance emergency payments of an additional $600 per week to those laid off because of COVID-19 restrictions discourages work and slows down economic recovery, several reports indicate. Several congressmen have introduced proposals to address the issue.
A report published by the Foundation for Government Ability (FGA) found that by nearly tripling average unemployment benefits through the CARES Act, “Congress has created a situation where unemployment now pays better than work” for roughly 68 percent of U.S. workers.
The CARES Act provides an additional $600 per week in unemployment insurance benefits through the Pandemic Unemployment Assistance (PUA) program. This assistance also includes individuals previously not covered by traditional unemployment insurance, including the self-employed, contractors, gig economy workers and others. It’s also on top of state unemployment benefits.
The average unemployed worker now collects nearly $1,000 per week – the equivalent of more than $50,000 annually, FGA calculates. For most unemployed workers, “sitting at home now pays better than returning to work,” FGA concluded. “This disincentive to work is devastating employers who are trying to reopen and save their businesses from bankruptcy or closure.”
According to a paper published by the National Bureau of Economic Research (NBER), 42 percent of recent layoffs due to the coronavirus response in the U.S. will result in permanent job losses.
The researchers found that only three new hires were made in the U.S. for every 10 people who were laid off as a result of state executive orders shutting down the economy, and “estimate that 42 percent of recent layoffs will result in permanent job loss.”
“Unemployment benefit levels that exceed worker earnings, policies that subsidize employee retention, occupational licensing restrictions, and regulatory barriers to business formation will impede reallocation responses to the COVID-19 shock,” they add.
“The pandemic UI bonus undercuts the entire purpose of the unemployment system: to cover a portion of lost wages temporarily until the worker can quickly find work,” Joe Horvath, paper co-author and senior fellow at FGA, said in a statement. “The pandemic unemployment benefit came from a place of good intentions, but the incentive to refuse work that it is now proven to create was predictable from day one.”
FGA recommends several steps states can take to move more individuals back to work as economies reopen, including a simple, easy-to-use process for employers to report employees who have refused an offer of suitable work.
Another FGA paper includes testimonies from a Vermont medical supply producer, a Tennessee furniture storeowner, a New York retailer, an Arkansas mill, among others, indicating that business owners are having difficulty rehiring their employees.
“Across the country and across industries, stories are pouring in from small business owners who cannot reopen their doors due to a government policy that makes sitting at home more lucrative than going to work,” Victoria Eardley, paper author and senior research fellow at FGA, said in a statement. “Our economy will collapse if we continue to incentivize unemployment over a return to normal.”
A new proposal introduced by Ways and Means Leader Kevin Brady, R-Texas, would transform unemployment benefits into a back-to-work bonus by allowing workers to keep up to two weeks of additional federal unemployment benefits after they accept a job offer.
“As more businesses re-open across the country, employers shouldn’t have to compete with unemployment to bring workers back,” Brady said.
U.S. Reps. Ted Budd, R-North Carolina, and Ken Buck, R-Colorado, also introduced a bill to amend the unemployment section of the CARES Act.
The bill caps the amount an individual can receive from unemployment insurance at 100 percent of their previous wages.
Budd said, “… businesses across the nation are struggling to hire workers because many individuals are receiving more money through unemployment insurance than they earned when they were working. We must do everything in our power to eliminate this perverse incentive. We have to get our fellow citizens back into the workforce as soon as possible.”