Politics

Here’s What Happens if Republicans Let Those $600 Unemployment Benefits Expire

A protester in a face mask holds a sign that says, "Where are my checks?"
Protesters stand together asking the state of Florida to fix its unemployment system on May 22. Joe Raedle/Getty Images

Thanks to Friday’s unexpectedly decent jobs report, Republicans are suddenly feeling less pressure to renew the $600-per-week federal unemployment benefits that have been keeping many families afloat through the coronavirus crisis. Stephen Moore, an outside economic advisor for the White House, probably put it most bluntly:

A spokesman for Senate Finance Chairman Chuck Grassley was more diplomatic. “The jobs report underscores why Congress should take a thoughtful approach and not rush to pass expensive legislation paid for with more debt before gaining a better understanding of the economic condition of the country,” they told Politico. Language aside, conservatives appear to be crossing their fingers and hoping that if more businesses are permitted to reopen, our economic problems solve themselves and they will be able to stop spending money on the plebes.

But while one might not have guessed it based on Trump’s surreal Rose Garden touchdown dance Friday, the country’s unemployment problem has not actually disappeared. It’s barely budged. As of May 16, the last date with complete data, more than 29 million Americans were still claiming jobless benefits. It is not at all clear how soon those people will be able to return to work. Allowing their federal aid to outright lapse would be both cruel and a near-term blow to the economy. (Full disclosure: Slate has applied for state shared work programs that would make employees eligible for unemployment insurance benefits as part of a reduced schedule, and so we have some vested interest in the federal program continuing. I wrote a whole article explaining it here).

The cornavirus relief bill Congress passed in March currently provides Americans who’ve lost their jobs a flat, $600 payment on top of the normal state unemployment benefits they’d be eligible for. As a result, many Americans likely receive more in government aid at the moment than they were paid at their old jobs. This has irked Republicans—especially Lindsey “Over Our Dead Bodies” Graham—who claim that it disincentives people from going back to work. While this may be true to some extent, Friday’s employment report has shown that plenty of people are in fact returning to their jobs, despite the ongoing plague and generous aid on offer, as Tim Noah points out at the New Republic.

And what would happen if Congress simply let the federal payments expire? The average recipient would potentially see a 63 percent drop in their income. That’s according to an analysis by Evercore ISI managing director Ernie Tedeschi (he tweeted out a state-by-state estimates earlier in the week, but added a national figure at my request. Thanks, Ernie). Cutting the federal benefit in half to $300 would shrink the incomes of the unemployed by about one-third. Given the number of people who will likely still be out of a job by summer, that would almost certainly deal a significant blow to consumer spending power and slow down the recovery.

Cuts to unemployment insurance
Jordan Weissmann/Slate

Another way to look at this is what’s known as the replacement rate: the size of an unemployment payment as a percentage of how much people earned at their previous job. Currently, Tedeschi estimates that the average replacement rate is about 101 percent (that’s why Democrats pushed for the $600 in the first place; they wanted to fully match people’s old earnings). If you zero out the federal benefit, the rate drops to 37 percent. At the halfway point, you get 69 percent replacement. (You might notice this graph is basically a right-side up version of the one above.)

Replacement rates
Jordan Weissman/Slate

If I had to guess, my sense is that Republicans and Democrats will likely still come to a deal that lowers the federal unemployment benefit, but doesn’t eliminate it entirely, which is where things seemed to be headed before today’s job figures. A $350 benefit that replaced 75 percent of income, on average, would actually be in line with what some progressives were hoping for before the CARES Act was negotiated (yes, Democrats actually exceed expectations on that front). An even more humane approach, which would avoid cutting anybody’s income at a time of national strife, might be to keep the benefits as-is but let workers collect a “return to work” to work bonus if they decide to get back to the job (Republicans have proposed the bonus as an alternative to the current UI setup, which would be the opposite of humane).

But simply letting the benefits disappear would be vicious, pointless, and set back the recovery Republicans seem to think is going so well.

1 According to Tedeschi, the average state unemployment insurance payment in the fourth quarter of 2019, the recent period with available data from the Department of Labor, was $354. Adding $600 to that brings it to $954. Letting the $600 expire would reduce the value back down 63 percent. The actual percentage drop may be somewhat different today, since millions of new people have applied for UI benefits and their base state payment might be different. But it’s a good basic approximation.