Protesters call for unemployment benefits in Miami Beach, Fla., May 22.
Photo: cristobal herrera/ShutterstockAs the House and Senate begin to formulate the next emergency fiscal package, a debate is brewing over what to do about the more-generous unemployment benefits included in the Cares Act—especially the $600 addition to everyone’s weekly benefits. Congress needs to debate this now because the provisions are scheduled to expire at the end of July.
Some members want to let the extra benefits expire on schedule. That’s a terrible idea. On July 31, the economy will likely still be struggling to crawl out of a depression-size abyss, with massive numbers of Americans out of work. Under such circumstances, past Congresses have always extended unemployment benefits, not reduced them.
Another group of legislators wants to continue the current provisions as they are. As I’ll explain, that isn’t a great idea either.
Yet others want to restructure unemployment benefits. They are right, but it’s important not to let “restructure” become a euphemism for “cut.”
It was odd that Congress decided in March to add a flat $600 to each weekly benefit check. Yes, it was definitely time to boost unemployment benefits, which are stingy in the U.S. compared with other rich nations. Unemployment-insurance payments are among the best automatic stabilizers policy makers have because they put money into the hands of people who will spend it. And extending those benefits is also among the best discretionary fiscal policies, which is why Congress does so in every recession.
Paying every laid-off worker the same $600 bonus was a crude solution, but it made sense at the time. It got money quickly to people who needed it. And most states were requiring or at least urging businesses to shut their doors. When the government doesn’t want people working, an income-support program that builds in disincentives to work isn’t a bad idea.
But now every state is reopening its economy. Some may be lifting restrictions too quickly and indiscriminately. That’s a different issue. My point is that all states now want, or soon will want, some employees to return to their jobs.
That’s where the fixed dollar amount becomes an obstacle. A trio of University of Chicago economists recently estimated that 68% of unemployed workers eligible for benefits would actually suffer income losses by returning to work. Think about that for a moment. For two-thirds of the unemployed, going back to work would reduce their incomes. That may make sense when we want people staying home, but it’s profoundly counterproductive when we want at least some of them to return to work.
The $600 weekly checks are now being received by roughly 21 million people. (Sadly, many of those who lost their jobs don’t qualify for unemployment benefits.) That’s a lot of money, and July 31 would be a terrible time to cut people off. The same money can and should be repurposed. Two options spring to mind.
First, instead of boosting the weekly benefit check by the same dollar amount, regardless of prior earnings or state of residence, Congress could raise the replacement rate (benefits as a share of prior wages) by the same percentage in every state. For example, a state that normally replaces 35% of lost earnings might go up to 75%, while a state that normally replaces 50% could go up to 90%. In each case, the federal government would finance the additional 40% of lost earnings.
A second way to reprogram the money would be to pay “back to work” bonuses for a time, thus providing a positive incentive to work. Returning to the job entails expenses that are not incurred when you stay home, such as commuting costs; and in these perilous days, going to work involves some health risk. So think of these bonuses as “universal hazard pay.” As many of the currently unemployed return to work, they would receive the back-to-work bonus instead of the $600.
Because the extra $600 a week is so costly, replacing it would free up enough money to finance both of these options. Now isn’t the time to reduce payments to the unemployed. But providing financial incentives to shun work is an idea whose time has passed.
Mr. Blinder is a professor of economics and public affairs at Princeton University and a former vice chairman of the Federal Reserve.
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