Student blog — Covid-19: What will happen to unemployment insurance?

By Maddy Scannell
Research Intern
McNair Center for Entrepreneurship and Economic Growth

Under the CARES Act, Americans receiving unemployment benefits receive an additional $600 per week from the federal government. But we may have come to the end of this support for millions of households unless Congress passes legislation to extend the timeline. Although the CARES Act stipulates an end to benefits on July 31, 2020, the administrative calendar that states use to pay out benefits means that every state will actually stop distributing the subsidy on either July 25 or July 26.^[1]

According to the U.S. Labor Department, approximately 32 million individuals were collecting unemployment insurance benefits at the end of June. Though these individuals will continue to get standard state unemployment benefits, jobless workers will face major benefit cuts. State benefits averaged $383 per week in early 2020, and, depending on the state, some individuals could face relative benefit cuts up to 85%.^[2]

A disincentive to work?

Some lawmakers are reluctant to simply renew the $600 supplement due to concerns about disincentivizing work. For many low-income recipients at an individual level, the additional payment means they receive more income from unemployment than at their prior job.^[3] Right now, the Americans taking the biggest economic hit are the lowest-paid workers — those at or near the minimum wage.^[4] To address this potential disincentive effect, legislators have proposed a cash bo n us for people who find new jobs, or reducing the amount of the subsidy.^[5]

On a macroeconomic level, the Organisation for Economic Co-operation and Development has recommended that some countries begin phasing out job retention programs and emergency support in order to incentivize workers to transition away from jobs that are not viable in the short- and medium-term. But the OECD also added that nations with less generous minimum wage protections (like the United States) may need to extend unemployment benefits to prevent a rocky transition for workers.^[6]

The importance of continuing coverage

Despite these concerns, other lawmakers are urgently calling for renewal of CARES Act unemployment assistance. Given the soft job market, it seems unlikely that many workers will turn down permanent jobs in exchange for temporary benefits. Additionally, there are currently 14 million more unemployed workers than existing job openings, meaning that millions of individuals have no choice but to remain on unemployment.^[7]^,[8] Cutting benefits could also further weaken the economy; an analysis by the Economic Policy Institute found that the spending generated by the unemployment subsidy supports over 5 million jobs.^[9] JP Morgan Chase similarly predicted that the expiration of benefits may result in contraction of household spending and further jeopardize economic recovery.^[10]

Even if Congress passes a new stimulus package extending unemployment benefits by the end of July, it is unlikely that the new benefits will reach workers for at least two weeks. States must reprogram computers for new dates and payments, a challenge exacerbated by outdated computer systems.^[11]^,[12] Thus, whether Congress passes an extension before the July 31 deadline or not, lawmakers should make future assistance retroactive, so recipients can receive benefits for weeks in which assistance has lapsed.^[13]