As congressional leaders clash over extending federal unemployment benefits, a new analysis concludes that the extra $600 per week in federal money since March hasn’t prevented unemployed people from returning to work. The results of the study from Yale’s Tobin Center for Economic Policy contradict recent Republican claims that continuing the enhanced $600 unemployment payments will create a disincentive for workers to return to their jobs.
“We find that workers facing larger expansions in UI benefits have returned to their previous jobs over time at similar rates as others,” the study’s authors wrote. “We find no evidence that more generous benefits disincentivized work either at the onset of the expansion or as firms looked to return to business over time.”
The study’s authors used data from Homebase — a scheduling and time clock software company — to examine layoffs before and after passage of the federal CARES Act in March and later rates of rehiring.
State governments calculate unemployment benefits using an individual’s recent earnings history and a set rate of replacement, which varies widely between states; in Minnesota, it’s approximately 50%.
While the $600 federal unemployment supplement was designed to replace 100% of lost wages, in many cases it ended up increasing the earnings of minimum wage workers, prompting concerns from conservatives that people would stay home collecting unemployment insurance rather than look for work.
But Yale researchers found that people who saw a greater increase in the generosity of their benefits with the addition of the CARES Act money were not slower to return to work than those who experienced less of a change in their replaced wages. In fact, the report notes, people with larger expansions of their UI benefits were somewhat quicker to return to the workforce than their counterparts.
Those $600 payments are currently set to expire on July 31. Senate GOP leadership has introduced the HEALS Act, which proposes slashing the extra money to $200 per week until states can enact a new program to replace 70% of workers’ lost wages.
“Almost all businesses, frankly, on both sides of the aisle — or mostly on both sides of the aisle — understand that the $600-plus that’s above the state unemployment benefits that they will continue to receive, is in effect a disincentive,” White House economic advisor Larry Kudlow told CNN in June, predicting that the extra benefits would stop after July. “We’re paying people not to work. It’s better than their salaries would get.”
House Democrats argue that the administrative infrastructure of state unemployment offices isn’t prepared to handle a new system.
The enhanced unemployment benefits have also kept a feared wave of poverty at bay and propped up the overall economy because people spent much of the money, creating economic activity.
Because pandemic-related job losses hit the low-wage service economy especially hard, experts say that adding the weekly $600 to the less than half of lost wages that many states replace has been crucial in meeting the basic needs of the most financially vulnerable people.