- Around 33 million people on unemployment could see up to 75% of their income vanish by the end of the month if Congress phases out $600 boosted federal unemployment payments with no replacement.
- “It’s prevented families from having to make financial sacrifices in the midst of a great deal of economic and public health uncertainty,” the economist Ernie Tedeschi told Business Insider of the ramped-up payout.
- The White House is opening the door to keeping $200 to $400 in additional unemployment payments.
- Tedeschi estimated that if benefits were scaled back to $200 to $400 a week, it would reduce consumer spending and cost the economy 600,000 to 1.1 million jobs.
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Around 33 million Americans are collecting ramped-up unemployment benefits in the middle of a recession sparked by the coronavirus pandemic. But the federal lifeline is set to expire in six days without anything to replace it.
That prospect, economists say, could cause millions of jobless Americans to fall into financial calamity during the pandemic. Ernie Tedeschi, the head of fiscal analysis at Evercore ISI, said in a note the benefit’s end would shave off 8% of GDP this summer — and people on unemployment could see their incomes plummet between 50% and 75%.
For example, a worker receiving an unemployment check in California — a state that’s now grappling with a surge in COVID-19 infections and renewed lockdowns — usually gets about $345, the base weekly payment. But that amount comes out to $945 with the enhanced payment, nearly replacing the worker’s average wage in a week. The expiration of the benefit would result in an income drop of 63% for that hypothetical unemployed person.
The boosted weekly payments have “kept individual families whole,” Tedeschi told Business Insider. “It’s prevented families from having to make financial sacrifices in the midst of a great deal of economic and public-health uncertainty.”
He added that low-income workers were able to continue paying bills and buying essentials like groceries, helping maintain their spending levels and ultimately shoring up the economy. But Republicans are seeking to scrap the $600 weekly boost, arguing that the beefed-up payments disincentivize job seeking.
Darrick Hamilton, an economist at The Ohio State University, told The Washington Post that allowing the enhanced benefits to expire “would make the recession deeper, longer and more entrenched.”
In March, Congress and President Donald Trump authorized a $600 federal supplement to state unemployment benefits to keep people afloat during a wave of massive job losses.
Combined with the $1,200 relief checks, the beefed-up unemployment benefits are credited with helping prompt quicker rebounds in consumer spending, particularly among low-income households. That trend is illustrated below in a Deutsche Bank graph shared by the Yahoo Finance reporter Myles Udland.
—Myles Udland (@MylesUdland) July 7, 2020
The Post reported that Americans earned $70 billion less in wages and salaries in May compared with February. That stemmed from job losses and employers cutting workers’ hours. But federal unemployment benefits leveled off that sharp reduction with $70 billion pouring into the economy each month.
Experts say the unemployment rate, which stood at 11.1% as of mid-June, will remain high for much of the year. The White House has signaled it could support extending $200 to $400 in additional weekly unemployment payments past the end of July.
Tedeschi said if Democrats and Republicans compromised on a $300 boost, for example, it would cause significant belt-tightening among many families already strapped for cash.
“That’s still a quarter to a third of their benefits that would disappear overnight and not be there anymore,” he said. “That’s going to force some very hard choices by families.”
Tedeschi says scaling back benefits at this stage would set back the recovery. He estimated that shrinking benefits to an extra $200 a week would cost the economy 1.1 million jobs this year compared with the $600 benefit and that a federal supplement of $400 a week would lead to 600,000 fewer jobs.
“That is not an economic catastrophe,” he said. “That is a self-inflicted wound at a time when economic uncertainty is higher, not lower.”