5 mins read

What Made People Choose Unemployment Benefits Over Working

Last Update: June 24, 2020

How generous were the additional unemployment benefits in the original stimulus bill handling the crisis? A new report reveals precisely this information while federal lawmakers consider implementing another aid plan for the coronavirus pandemic that put roughly 35 million Americans out of jobs

According to the University of Chicago researchers, two-thirds (68% of unemployed workers would bring home more money from their state unemployment insurance, in addition to a $600 weekly federal government supplement, than they would have at work. 

In fact, one in five eligible workers would receive benefits that actually doubled their lost earnings.

The researchers also highlighted that they were not taking a position on the matter of whether the temporary benefits were too big or too small. 

Unemployment Benefits in Numbers

The average earnings-replacement rate was estimated to be 134% of missed income. In each state, the average earnings-replacement rate exceeded lost wages, varying from 129% in Maryland to 177% in New Mexico.

The additional $600 weekly benefit was part of the $2.2 trillion CARES Act, which also included direct $1,200 checks to most Americans. Other than that, there were possibly grant-basis loans for businesses. The new unemployment insurance expires at the end of July. 

According to Federal Reserve Chairman Jerome Powell, nearly 40% of all jobs that pay less than $40,000 in February were lost in March

The Chicago report, published by the National Bureau of Economic Research, said that this income expansion was positive for low-income jobs, but many employees may also have lost their health insurance, together with their wages. 

Lawyers passed the CARES Act at the end of March to immediately inject cash into the economy to help rebound from the epidemic and its increasingly changing fiscal implications. 

According to the Bureau of Labor Statistics, the country’s unemployment rate reached 14.7% in April, with 20.5 million jobs vanishing that month alone.

Why Do Frontline Workers Feel Underpaid

The flat rate may seem unfair as the scheme mainly pays some laid-off employees but otherwise does not offer any additional pay to equally important frontline workers.

For example, a janitor that is still on the job may not risk losing his pay, but an unemployed janitor could earn 158% of its previous salary, the study said. Researchers looked at the US Census data on the average job salaries and put the numbers into an unemployment benefits calculator they created. This meant comparing their own estimates of nationwide average benefits from probable unemployed applicants with average benefits from actual applicants, as recorded at the Department of Labor. 

According to census figures, the average household income was $63,179 in 2018. 

The CARES Act authorized additional payments, but observers noticed the money could not be put in the pockets of all eligible workers between bureaucracy and the flood of claims. According to the Left-Wing Economic Policy Institute, only 37 out of 100 eligible workers successfully completed the application process. 

The researchers stressed that they did not determine how much the extra unemployment insurance would bring. They said that there are arguments for both sides. On one hand, the money provides much-needed cash, but at the same time, high pay rates may discourage some from returning to the workforce. 

Opposing Opinions

Many others have opinions on the unemployment benefits.

Several Republicans commented that many workers would earn more from unemployment during the Senate debate. They suggested an amendment to pay employees nothing more but their missed earnings. On the other hand, Sen.Dick Durbin, an Illinois Democrat said:

Let’s give them that helping hand and not apologize about it for a minute.

The amendment failed and the Senators accepted the resolution unanimously by the end of March. In a statement after the passage of the bill, the Labor Secretary Eugene Scalia noted the increased unemployment benefits and other measures of the bill will put companies and workers in a better position to start working and reset the economy once the virus has been handled. 

Since then, the House of Representatives of the Democrat majority has passed the HEROES Act, which would extend the same $600 additional unemployment benefit until January. The Republican majority leader, Sen. Mitch McConnell, slapped the bill down as a Democratic “wish list.” 

Treasury Secretary Steven Mnuchin said Congress will probably have to pass another relief bill but that it has to fix current unemployment benefits rates. He explained that: “We do need to fix the quirk that, in certain cases, we’re actually paying people more than they made”.

Many reports show that millions of people struggle from month to month, and use government funds for necessities only. Almost a third of the recipients say that they use the benefits to pay bills, according to the latest YuGov report.