The GOP has proposed renewing the supplement at a lower level, $200, through September, to be followed by a new system under which recipients get 70 percent of their previous wages, up to $500 per week. Democrats want the $600 per week to continue unchanged through the end of this year. It’s anyone’s guess how this might be resolved before Friday.
Perhaps it would help to recall that the $600 supplement, like the March 27 Cares Act, of which it was a part, was actually a bipartisan measure. Democrats and Republicans agreed that workers being thrown out of their jobs because of the nationwide pandemic response should get the same weekly income they had on the job. Calculating a 100 percent wage replacement for everyone proved technically infeasible, however, because of the insufficent investments states had made in their computer systems. So lawmakers approved the $600 flat rate as a rough-and-ready substitute.
It was understood at the time — some GOP senators even raised the issue — that many beneficiaries would get more in unemployment than at work, and that this could create a disincentive to work. Given the lack of jobs, and the need to shore up family budgets, as well as the proven role of unemployment insurance in boosting much-needed demand, this anomaly was deemed acceptable.
The GOP goal of 70 percent wage replacement retreats from this previous consensus, in the name of restoring work incentives, though it is better than the 45 percent that states typically provide. Democrats correctly respond that there is not yet much evidence of a negative impact on labor supply because of the $600 supplement, largely because there are still so few jobs open. The economic outlook is uncertain at best. It stands to reason, however, that perverse incentives will grow in significance as time goes on and the labor market heals. The Congressional Budget Office estimates that 5 of every 6 unemployed Americans will be better off receiving benefits than working by the end of 2020, if the $600 supplement remains in place.
The best approach would be to shoot for a higher level of wage replacement than the GOP has proposed, while still reducing the percentage of workers receiving more in unemployment than they could by working. To that end, it may make sense to create a trigger mechanism to reduce supplemental benefits as unemployment shrinks. Major investments in technology are also urgent, so state agencies can at last do the calculations necessary to optimize benefit levels.
The worst outcome would be for the $600 supplement to lapse with nothing to replace it, sending workers, and the economy, over a cliff. As matters now stand, the country is dangerously close to the edge.