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Does Unemployment Pay Too Well—and Is It Hurting Employers?

July 10, 2020 - minute read

In this day and age, $600 won’t get you too far. However, as American businesses seek to bounce back from the COVID-19 crisis, this relatively modest sum is sparking widespread controversy. We’re talking about the extra $600 unemployment benefit mandated under the CARES Act, of course—considered a lifesaver by some and a business killer by others. 

According to proponents, those extra dollars are key to helping families survive the deadly COVID-19 pandemic. During April and May—when many states and jurisdictions mandated wholesale shutdowns—nearly one-fourth of America’s workforce was unemployed. Since regular unemployment benefits only replace about 40% of prior wages, that extra $600 per week kept many Americans from tipping into poverty.

However, according to critics, that same $600 benefit is now making it harder for employers to get back to business. In many case, unemployed workers are collecting more money by staying home than they ever did collecting a paycheck—disincentivizing them to return to their jobs or pursue new ones. In one May survey, 28% of responding employers said that their recalled employees were resisting returning to work because of their high unemployment compensation.

However, like most things, this issue isn’t as simple as it first appears. Let’s review some of the facts, myths and misunderstandings surrounding this enhanced unemployment benefit—and what may lie ahead.

What an Extra $600 Unemployment Can Do 

Back in March, Congress came to quick agreement regarding the flat $600-a-week benefit in order to deliver swift aid to struggling Americans. The goal was to boost that typical 40% unemployment benefit to about 100% of wages for the average American worker.

However, according to economists at the Becker Friedman Institute for Economics at the University of Chicago, under the CARES Act, two-thirds of workers eligible for unemployment insurance may receive benefits that exceed their regular earnings. In fact, one-fifth of workers may receive at least double their regular wages.

Furthermore, according to analysis by the Center of Research on the Wisconsin Economy at the University of Wisconsin, as a result of that additional $600, American workers are receiving:

  • 130% of average wages in six states
  • 120% of average wages in 21 states, and
  • 110% of average wages in 34 states

Low-wage hourly workers are most likely to benefit most this way. The question is: is it keeping them from returning to work, particularly when there are other factors at play? 

Unemployment vs. Work: It’s Not the Worker’s Choice

While critics say these rich unemployment benefits disincentivize people from returning to work, employees who are recalled generally don’t have a choice. Under the law, workers who refuse to return will lose unemployment eligibility, unless they meet exception criteria detailed in the CARES Act. Exceptions include workers who:

  • Have been diagnosed with COVID-19 or are experiencing symptoms and seeking a medical diagnosis.
  • Have a family member who has been diagnosed with COVID-19.
  • Have primary caregiving responsibility for a child or another individual who cannot attend school or another facility that is closed because of COVID-19.

In fact, workers who are asked to return to work but continue to collect unemployment benefits can be prosecuted for fraud. And in an environment when jobs are hard to come by, how many workers are going to give theirs up—especially, and most significantly, when the $600 benefit is slated to expire at the end of July? 

Will Extra Unemployment Benefits Be Extended by Congress?

The question on many employers—and unemployed workers—minds is whether the $600 benefit will be extended when Congress returns from recess on July 20.

Proponents claim that letting the extra benefit lapse could have a dire impact on the millions of Americans who remain unemployed. After all, eviction and foreclosure moratoriums expire at the end of August, some food prices continue to rise, and COVID-19 is surging in many states. 

That’s why the House of Representatives passed the Heroes Act, which among other things (including a second stimulus check) would extend the $600 benefit through January 31, 2021.

We will undoubtedly learn more when Congress gets back in session. In the meantime, employers continue to chart their own path to recovery, tailored to their specific workforce.

EPAY Systems is committed to helping employers find solutions that work for them. Among other initiatives, we recently hosted a roundtable composed of experts—a leading economist, employment law attorney, and industry thought leaders—to discuss ways employers can reengineer their workforce to adapt to new conditions. If you weren’t able to attend, we invite you to listen now.

Filed Under: Human Capital Management Employee Benefits COVID-19