Roughly 30 million people have filed for unemployment since the coronavirus pandemic wreaked havoc on the nation’s economy. Economists estimate that the unemployment rate now ranges from 15 to 20 percent – numbers not seen since the Great Depression nearly a century ago. How H How quickly the economy bounces back will hinge on how many of these people will get jobs once governors give the all-clear.
There are some workers, however, for whom the incentive to work may be quashed by government generosity. The additional $600 a week in unemployment benefits, passed in the CARES Act, combined with state unemployment benefits will mean that some people will be in a position to actually make more money by staying jobless.
“It’s a huge issue. A large slice of the U.S. workforce will make more money by not working than by working,” said David Henderson, an economist and research fellow at Stanford University’s Hoover Institution. The average state already gives out $463 per week in unemployment benefits. Together with the new $600 per week, adds up to $1,063 per week – or about $26 an hour. While the “unemployment insurance on steroids” as many have come to call it, is set to last for four months, Speaker Nancy Pelosi is already arguing for an extension of the added benefits in a stimulus 4 package.
The CARES Act also allows people to quit and collect unemployment if they “self-certify” that they had to leave their jobs due to a COVID-19 situation. A valid reason includes if a person is the primary caregiver of children who are out of school. Rather than find other means of childcare (unemployed neighbors for example), many could just use the time to take the summer off.
Another irony is that some small business owners who have hustled to get their forgivable loans through the Paycheck Protection Program so that they don’t have to lay anyone off are now facing unhappy employees. The owner of two spas told CNBC that she felt like she won the lottery when she got her two loans approved. When she convened a virtual meeting to explain her good fortune to her 35 employees, she expected jubilation and relief. Instead, she “faced a firestorm of hatred.” “I couldn’t believe it,” she added. “On what planet am I competing with unemployment?”
Granted, for some states like California, an extra $600 would mean the difference between being self-sufficient or driving through charity food lines. It’s unfortunate that government doesn’t have the technology or the inclination to differentiate. Millions of Americans will receive extra benefits who probably should not have, driving the U.S. economy even deeper into debt. My mother, who is on social security, wondered what she did to get her $1,200 “relief” check. When I asked her what she’s going to do with it, she said she will get take-out for her favorite dish — chile relleno (she really said this). That’s a lot of chile relleno.
Rowena Itchon is senior vice president of the Pacific Research Institute.