Unemployment claims spiked more than 1,000% last week, with initial claims rising from 282,000 to 3.3 million as businesses laid off workers during the coronavirus pandemic.
This marks the highest level of seasonally adjusted initial unemployment claims since the series of reports began over 50 years ago.
Labor Secretary Eugene Scalia noted: “This large increase in unemployment claims was not unexpected, and results from the recognition by Americans across the country that we have had to temporarily halt certain activities in order to defeat the coronavirus.”
But it’s nonetheless worrisome.
What’s more troubling, however, is Democrats’ insistence on including a provision in the CARES Act that will increase unemployment insurance claims.
The CARES Act creates “Federal Pandemic Unemployment Compensation” to provide unemployed workers with an additional $600 per week in unemployment insurance benefits.
These amped-up benefits are available regardless of how much workers were earning prior to becoming unemployed, and regardless of whether their unemployment has anything to do with COVID-19. Even workers who became unemployed before March can receive additional benefits.
Combined with traditional unemployment benefits that average about 50% of workers’ previous wages, this will mean that a majority of Americans can get more money when unemployed than when employed.
Consider someone who makes $1,000 per week ($52,000 per year). They now can receive 10% more—$1,100 per week—if they become unemployed.
Lower-wage workers will have the greatest financial incentive to collect unemployment insurance. Someone who works 30 hours per week at the federal minimum wage could triple their weekly income—from $218 per week to $709—by collecting unemployment insurance instead of working.
With millions of workers losing their jobs through no fault of their own, it makes sense to provide temporary federal unemployment insurance supplements to bring individuals up to 100% of their previous incomes.
Maintaining full incomes would help individuals most negatively affected by the pandemic and could reduce the breadth and depth of the economic downturn.
But Democrats refused to do just that, unanimously rejecting Republicans’ amendment to cap total unemployment insurance benefits at 100% of workers’ wages.
The windfall unemployment insurance benefits that millions of workers will receive might seem like great news. But in reality, supersized unemployment insurance checks that discourage Americans from working likely will impede the economic recovery. They could also have substantial long-term consequences for those induced into unemployment.
Economic studies show that even short-term unemployment can lead to a decline in physical and mental health and reduced fertility.
The real tragedy will come if the added unemployment benefits cause an increase in long-term unemployment. Such joblessness has been shown to reduce workers’ incomes and opportunities and to cause a rise in disability insurance beneficiaries.
Humans have an innate desire to work, to produce things of value. Public policy should support instead of discourage work.
Other components of the CARES Act package recognize the importance of keeping people employed, even if their employment is temporarily shut down.
For example, the CARES Act provides funds (through loans and then loan forgiveness) to cover up to two and a half months of payroll costs for small businesses.
Employers also can receive advance credits for up to 10 weeks of paid sick and family leave that they are required to give their workers (including leave for employees who have children home because of school and child care closures).
And for larger businesses, loans are contingent on their maintaining at least 90% of their previous employment levels.
But if employees can be made better off by being laid off, and businesses don’t need their employees and can avoid taking out loans, that’s what they’ll do.
That could turn a temporary public health crisis into a massive economic downturn, not to mention negating some of the potential benefits of an additional $2 trillion in deficit-financed stimulus spending.
If Congress wants the economy to recover as quickly as possible after it’s safe to reopen things, and if it cares about the long-term welfare of workers, it should enact policies that will keep people employed instead of incentivizing them to become unemployed.