coronavirus

Is a $300 Unemployment Boost a Disincentive to Work? Covid Relief Bill Revives Anxiety

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  • Republicans chafed at a $600 weekly boost to unemployment benefits in the CARES Act.
  • The enhancement paid many workers more money than their prior paychecks. Some lawmakers thought it would prevent workers from returning to work and hold back the recovery.
  • A $900 billion Covid relief bill, which offers a $300 weekly benefit boost, also carves out "return to work" rules for states.

A familiar tug-of-war around work and enhanced unemployment benefits has re-emerged as jobless workers seem poised to get a $300 boost in weekly benefits.

Workers would get a $300-a-week infusion through the middle of March as part of a $900 billion Covid relief bill package awaiting President Donald Trump's signature.

Tucked into the bill are "return to work" rules for states, which must ensure businesses have a way to rat on workers who turn down a job offer. Such a refusal renders workers ineligible for jobless benefits — and the extra pay.

The rules largely amount to pageantry, since they don't create a new legal requirement for workers and states already have mechanisms in place for such reporting, according to labor experts.

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However, the rules revive a heated argument from the early days of the Covid pandemic and its resulting economic calamity. At the time, many Republicans believed generous benefits offered an incentive to remain unemployed.

"I'm not surprised," said Michele Evermore, a senior policy analyst at the National Employment Law Project. "It's been a huge talking point all year."

$600 a week

When Congress issued a $600-a-week boost to unemployment benefits in the spring, as part of the CARES Act, the backlash was swift and fierce.

The goal of the infusion, coupled with typical state benefits, was to fully replace lost wages for the average worker — almost $1,000 a week. (Typical state benefits generally replace half of lost wages.)

But many workers, mostly those with lower pay, earned more while unemployed than at work.

Many conservative lawmakers lambasted the policy as a disincentive to return to work. Such a dynamic would hold back the economy from a quick rebound, they argued.

Democrats argued the enhancement was a necessity. Millions relied on the income support to pay bills and put food on the table, at a time when finding a job was challenging and it made sense to keep people home to prevent spreading the coronavirus, they said.

Numerous studies found the $600 stipend didn't have a negative effect on the labor market. In the aggregate, it didn't inhibit people from looking for work or cause them to leave a job, they found. Businesses didn't have trouble recruiting for job openings.

"There weren't enough jobs and too many people were unemployed," said Ioana Marinescu, an assistant professor of economics at the University of Pennsylvania, who co-authored one of the studies. "It just wasn't a problem on the big scale of things."

Tug of war re-emerges

The supplement lapsed in July. Democrats wanted to extend it but Republicans were opposed.

This time around, lawmakers seem to be less vocal about their opposition, but the relief legislation shows it's still on their mind, according to labor experts.

"It's left over from the $600 concern," according to Andrew Stettner, a senior fellow at the Century Foundation, a progressive think tank. "[The legislation] is trying to make all states be more vocal on this issue."

A $300 cash infusion may have a larger disincentive effect now, given labor-market improvements from the height of the crisis, Marinescu said. But it's not a significant concern, she said, since there's still a dearth of jobs and the economy hasn't rebounded to the extent it would pose a threat.

"It's just not all that bad, and we need the stimulus," she said.

Plus, fewer workers would surpass full wage replacement with a $300 boost, which is half the level of the CARES Act subsidy and the same amount as a Lost Wages Assistance program created by President Donald Trump over the summer.

The typical person would replace about 85% of their pre-layoff paycheck with an extra $300, according to an analysis by Ernie Tedeschi, an economist at Evercore and a former Treasury Department official.

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