A major battle is brewing in Congress over whether to extend the $600 federal bonus added to weekly unemployment checks. The bonus, created in March to “make whole” the workers laid off due to the coronavirus lockdowns, expires at the end of July, but efforts to extend it are already turning into a battle to expand unemployment benefits well into the future, long after the pandemic has ended.
The nation’s unemployment insurance system is administered by states under broad federal rules. Typically, states offer up to 26 weeks of benefits that replace nearly half a laid-off worker’s previous wages while he or she searches for work. In almost every major recession between 1957 and 2007, the federal government temporarily paid states to provide more benefits to individuals after their state unemployment insurance checks stopped. These emergency benefits added up to an extra 13, 20, 26, or even 33 weeks of benefits, depending on the recession.
The Great Recession of 2007-2009 changed this approach in two major ways. First, the number of weeks with federal benefits skyrocketed, with up to 73 additional weeks being paid between 2009 and 2012 in high-unemployment states. Second, for the first time, the federal government increased the value of unemployment checks, adding $25 per week in 2009 and 2010.
Today, the federal government maintains the practice of paying additional weeks of benefits, and Congress has authorized up to 33 weeks of extra benefits through December 2020. However, the size of the $600 bonus payments is completely unprecedented. The current $600 federal bonus added to all unemployment insurance checks means benefits now average a record $973 per week.
Because of that increase, benefits are now greater than the last paycheck for an estimated two-thirds of the current 20.5 million unemployment recipients. Were Congress to extend the benefits, the Congressional Budget Office projects that over 80% of future recipients would get unemployment checks bigger than the paychecks the coronavirus cost them. It’s one thing to tide people over — it’s quite another to pay people more not to work than they could make working.
Some politicians would like even longer bonus extensions. Sen. Ron Wyden, the senior Democrat on the Senate Finance Committee, proposes linking continued bonuses to state unemployment rates, with $600 payable where unemployment is above 11%, falling by $100 increments for each percentage point, down to $100 where unemployment exceeds 6%. With the CBO projecting U.S. unemployment averaging over 9% in 2021, such bonuses would remain payable for years ahead.
If unemployment rates follow CBO projections and this recovery tracks the Great Recession, unemployment could average over 6% through September 2024. That means the Wyden bonuses could be payable in some states into 2025 — five years post-pandemic.
The dangers of paying bigger unemployment checks for longer abound.
First, experience shows that paying bigger unemployment insurance checks than paychecks encourages layoffs by making them “more palatable” to employers who believe that workers are “better off.” Unemployment insurance bonuses also make rehiring harder, as workers logically prefer to keep higher benefits. In a Catch-22 situation, this raises unemployment, perversely boosting bonuses under the Wyden approach.
Bonuses also harm labor relations, with workers still on the job envying those laid off, and advocates decrying employers who “snitch” on those rejecting job offers.
Research also has long shown that unemployment leads to lower future earnings, often lasting for decades, especially for the long-term unemployed. For them, a decade after layoff, wages “were roughly 32% lower than [for] nondisplaced workers.” Other data show that the long-term unemployed suffer tragically elevated rates of substance abuse and death. And for the country as a whole, the staggering cost of the bonuses (estimated at $176 billion through July 2020 and a large share of the $437 billion cost of the most recent House unemployment legislation) adds to the deficit.
We are at a key inflection point: States are reopening, layoffs are tapering, and millions are returning to work, as reflected in the strong May jobs report. Bonus-extension supporters, who originally argued for bonuses because “we were asking [recipients] to help defeat this virus by not working” are now forced to use the arguments last heard during the Great Recession, that unemployment is the biggest stimulus.
If these $600 bonuses expire in late July as currently scheduled, history may regard them as a one-time policy suited to a once-in-a-lifetime pandemic. But if bonuses are extended after the lockdowns ease, that precedent makes them likely to become a permanent part of the federal benefit response to future recessions. Instead of just adding weeks of benefits when unemployment rises, the new approach would dramatically increase the size of checks as well. That would undermine the unemployment insurance program’s long-standing financial incentives to return to work, portending greater unemployment, slower recoveries, and long-term harm to the very individuals the authors of such policies seek to help.
Matt Weidinger is the Rowe fellow in poverty studies at the American Enterprise Institute.
