Use the $600 Unemployment Supplements to Get People Back to Work

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Included in the massive $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act is a new unemployment benefit which could unintentionally delay America’s economic recovery from the coronavirus crisis. The new benefit — an unemployment check increase of $600 per week — is being distributed atop existing state unemployment insurance (UI) benefits. This will result in many laid off workers receiving more money in unemployment checks than in their previous or future paychecks. That increase may already be encouraging layoffs as employers recognize “most [employees] will be better off receiving government assistance." It could also tempt many of those who are now sidelined to not return to work even as parts of the economy start to reopen.

Especially for those who fear they could be risking their health by returning to work, that temptation already will be strong. And it’s hard to blame them. But, as explained by Sen. Ben Sasse (R-NE), the broader effect could be to cripple supply chains in critical sectors Americans depend on — whether health, food prep, or delivery. As a laid off bartender noted recently when discussing the possibility of starting work at a grocery or big-box store, “Coming home and infecting my family [is] … not worth a $13-an-hour job.” That’s especially true when the government is offering effectively an extra $15 per hour unemployment benefit (that is, $600 per week divided by 40 hours), on top of regular UI benefits. Sen. Sasse tried to even things out by capping the combined unemployment benefit at no more than an individual’s prior wages, but his amendment was defeated, and the $600 weekly supplements are law, for now, through the end of July.

Proponents of the $600 supplements have dismissed Sen. Sasse’s concerns, noting that it’s more important to get money in the hands of the unemployed quickly. Sen. Richard Durbin (D-IL) said “we are determined to make sure that the workers come out at least whole, if not better” while the government shuts down major parts of the economy.

Such arguments may be defensible in the short run. But what will happen if conditions improve, the economy starts to reopen, and workers can safely return to work? The $600 supplements are payable through July and could get extended beyond then in future legislation, as Speaker Nancy Pelosi recently announced she intends to do in the next stimulus package. If workers are able to safely return to work before these supplements expire, what can be done to ensure that these unemployment benefits promote a return to work and the financial security that comes with a paycheck?

One possibility is to allow the $600 supplement to promote work over unemployment benefits. That could be achieved by allowing the $600 to be paid as a reemployment bonus divided equally between those leaving the unemployment rolls and their new (and often former) employers. Put simply, if an unemployed worker eligible for the $600 supplement returns to work, then the $600 supplement for that week would be split evenly between the employee and the employer. Both would receive $300 — potentially between now and the end of July when the supplement is currently scheduled to expire — for every week the individual is on the employer’s payroll instead of receiving unemployment benefits.

 

Everyone would win under this approach. Newly hired employees would get a paycheck and benefits, plus $300 per week for every week they are employed. Employers would receive the same $300 weekly bonus for hiring workers now on unemployment and keeping them on the payroll. And the adjusted policy would help taxpayers as unemployment benefits would be replaced by paychecks.

Specifically, an unemployed worker rehired by his employer at the beginning of May would receive $300 per week for as many as 12 weeks or a total of up to $3,600 through the end of July (on top of a paycheck and work-related benefits). The employer could get the same $3,600 for hiring and keeping the worker on payroll for those weeks. The sooner the unemployed worker is back on payroll, the bigger the payoff for both employee and employer. Coupled with the Paycheck Protection Program included in the CARES Act, which offers to cover payroll costs for many small businesses, this would create a hiring bonus, temporarily paying employers to have these workers on their payroll.

To be clear, under this proposal those who continue to be unemployed would remain eligible for the $600 supplement through the end of July, on top of their regular unemployment benefit. But when workers can safely return to work, this proposal offers more money in the pockets of critically needed workers and a financial incentive for employers to rebuild their teams — sooner rather than later. That’s a win-win for everyone.

Matt Weidinger is the Rowe Fellow in poverty studies at the American Enterprise Institute. He is a former deputy staff director of the House Committee on Ways and Means.



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