Rift Over Unemployment Bonus Persists as Critical Deadline Looms

Speaker of the House Nancy Pelosi (D-Calif.) talks to reporters during her weekly news conference in the U.S. Capitol Visitors Center in Washington, DC. on July 16, 2020. (Chip Somodevilla/Getty Images)

WASHINGTON—Democrats and Republicans are divided over an additional $600 per week in coronavirus unemployment benefits as the July 31 deadline nears.

The CARES Act, passed in March, substantially expanded unemployment insurance to help workers who lost their jobs due to the pandemic. The bill has provided a $600 weekly pay boost on top of regular unemployment insurance benefits. The bonus is set to expire unless the federal government extends it.

While Democrats believe the enhanced benefit is an urgent necessity, Republicans say it discourages workers from returning to work.

House Speaker Nancy Pelosi (D-Calif.) on July 16 said she strongly favored full extension of unemployment relief, but also signaled that there could be a compromise.

“I’m all for the $600. But again, what I said was the whole package will depend on what we do also for direct payments,” the speaker said, when asked to clarify if she was willing to compromise with Republicans on the size of the benefit.

In May, House Democrats passed a $3 trillion relief legislation, the HEROES Act, that would extend the extra unemployment benefit through January and provide another round of direct payments of up to $1,200 for eligible adults and children.

The Trump administration and Republicans voiced opposition to renewing the unemployment benefit.

“On the point of unemployment insurance, one thing that he [the president] is concerned about is he does not want to see an incentive not to work,” Kayleigh McEnany, White House press secretary, told reporters on July 1.

In recent weeks, however, some Republicans have suggested narrowing the benefit to $400 or less to signal their openness to a compromise. Treasury Secretary Steven Mnuchin also indicated that future unemployment benefits would not exceed 100 percent of a worker’s prior wages.

In addition, some Republican lawmakers called for replacing the $600 unemployment bonus with a back-to-work bonus to reward workers who return to their jobs. For example, Rep. Kevin Brady (R-Texas) introduced a bill last month that would offer a $1,200 cash bonus for Americans going back to work.

“I don’t know if they know what they’re talking about,” Pelosi said when asked about return-to-work bonus proposed by Republicans.

“People do not want to risk their lives and that of their families by going to work that isn’t safe. We can open the economy if we make it safe for people to go back to work,” she said.

Economic Impact

The U.S. labor market made a stunning comeback in the last two months, beating expectations. Employers added 7.5 million jobs over May and June, as states began reopening their economies. The unemployment rate dropped to 11.1 percent in June from 14.7 percent in April.

While there’s a strong argument in favor of income support during the pandemic, some economists raised concerns about the generous unemployment benefit, saying that it could induce labor supply disincentives as the economy recovers.

According to a recent study by economists at the University of Chicago, 68 percent of people who are eligible for unemployment benefits receive compensation that exceeds their prior wage. Before the pandemic, the unemployment program typically provided benefits that were a fixed fraction of workers’ previous earnings.

The crisis, however, transformed the unemployment system, which is now rewarding jobless workers more when compared with employed workers.

Nearly 20 percent of unemployed workers are receiving benefits at least twice as large as their lost wage, according to the study.

According to the left-leaning Economic Policy Institute (EPI), cutting off the $600 will not incentivize Americans to get jobs, and it will cause hardship.

“The concern about the disincentive effect has been massively overblown,” Heidi Shierholz, senior economist at the EPI, wrote in a report.

“First, it ignores the realities of the labor market for working people, who will be unlikely to turn down a permanent job—particularly in a time of extended high unemployment—for a temporary boost in benefits,” she wrote.

“Further, there are 14 million more unemployed workers than job openings, meaning millions will remain jobless no matter what they do.”