The unemployment bonus has been working, so why do Republicans want to slash it?
The federal government agreed to boost weekly unemployment benefits by $600 when it passed the stimulus package, or Cares Act in late March.
Almost as soon as it launched, Republicans have been saying that the bonus, while necessary as a one-time policy, is ultimately a “disincentive” for laid-off Americans to come back into the workforce, because unemployed workers can actually make more by staying home and collecting benefits. Republican Sen. Lindsey Graham of South Carolina said in April that the unemployment insurance would get extended “over our dead bodies.”
But is it actually true that more generous unemployment has been a disincentive?
It seems to be true that Americans, on average, are earning more with the benefit than they were without it. A recent Deutsche Bank report found, as Business Insider’s Hillary Hoffower reported, that the government support created by The Cares Act has actually increased personal income since the start of the recession.
But Americans haven’t been holding onto this money. They’re spending it, and spending it on important things, research suggests. Analysts from the Kellogg School of Management at Northwestern University that analyzed how people spent their stimulus checks found that individual spending went up for food, household items, and bill payments, including rent, “suggesting that many people were using the funds to obtain necessities and catch up on bills.”
Nor has it been a disincentive for Americans to go back to work because, well, they’ve started going back to work. In May and June, while the unemployment bonus was still operative, American businesses added more jobs than they cut for two straight months. The US added almost 5 million jobs in June as the unemployment rate fell from 13.3% to 11.1%, indicating that the supposed “disincentive” from the unemployment bonus has actually functioned more like a kind of emergency universal basic income, a successful one.
It’s also stimulated the economy.
The unemployment bonus has been a (successful) trial run for universal basic income, stimulating the economy and strengthening the safety net
According to research by the JPMorgan Chase Institute of 61,000 households, the $600 unemployment payment helped Americans spend 10% more than they did before the pandemic, Reuters reported.
“Our estimates suggest that expiration will result in large spending cuts, with potentially negative effects on both households and macroeconomic activity,” the researchers wrote.
Separate data shows retail sales jumped following the passage of The Cares Act.
“This is what happens when you give money to the bottom 50% — they spend it, any which way they can. There is the clue to getting out of the stagnation trap,” tweeted Sri Thiruvadanthai, director of research at the Jerome Levy Forecasting Center, a market research firm.
Business Insider’s Drake Baer previously reported at The Cut that people in low-income brackets don’t waste cash infusions, they spend it on necessary items. A 2014 World Bank analysis found that people who are struggling and who get money spend it on household goods, costs associated with schooling and health care — not booze or cigarettes as those subscribing to the idea of the “welfare queen,” or someone who abuses government assistance, might argue. A study of Sri Lankans given a one-time grant of $100 to $200 dollars, Baer reported, led to “higher profits and survival rates for small businesses five years later.”
Finally, the unemployment bonus has strengthened the safety net for unemployed Americans. Research from Columbia University showed the $600 boost — along with the Cares Act’s $1,200 stimulus check — helped keep around 12 million people out of poverty in the US.
Nancy Pelosi and the Democrats already passed a bill that would extend the $600 bonus to January, but the latest indications from the Republican side suggest they want to replace it with a scale of roughly 70% of a jobless person’s lost wages. That would cut off 30% to 50% of the income for millions of unemployed, Business Insider’s Joseph Zeballos-Roig reported, citing economist Ernie Tedeschi, the head of fiscal analysis at Evercore ISI.
Some prominent economists have also told Fortune’s Lance Lambert that failing to extend the $600 benefit would send the US economy into a nosedive.
“The economy going back into recession is likely if we cold-turkey cut the extra unemployment insurance benefits,” Mark Zandi, chief economist at Moody’s Analytics, told Lambert. “They’d stop paying their bills and stop spending, and [it would] kick the whole economy down.”