Corrected, March 31, 2020, 3:20 p.m. | Economists who follow unemployment issues gave Congress high marks for the economic rescue package passed last week, although they foresee challenges when the short-term fix expires at the end of the year.
In the law enacted March 27, Congress brought so many additional workers under the employment insurance umbrella that lawmakers effectively transformed the state-based program into something resembling a general income support system, the economists say.
“I think they are, in this sense, using it as a UI system, but more generally as an income transfer program to all working households in America,” said Christopher J. O’Leary, an economist at the Kalamazoo, Michigan-based W.E. Upjohn Institute for Employment Research.
O’Leary and another Upjohn economist, Stephen A. Wandner, made several recommendations for adapting unemployment benefits as the public health emergency over the COVID-19 pandemic intensified. The law addresses most of their recommendations.
The Upjohn economists highlighted income risks to individuals whose jobs don’t provide adequate sick leave; workers who might qualify for unemployment insurance but don’t meet the requirement to be actively seeking work; those who run out of eligibility; and others typically outside the traditional unemployment insurance umbrella, such as the self-employed, gig workers and contract employees.
O’Leary said the Labor Department already has allowed state agencies to waive the “able, available and actively searching for work” requirement. The law extends benefits to 39 weeks, although he and Wandner had recommended doubling the usual 26-week availability.
Closing coverage gaps
“I think that the CARES Act goes a long way to protect workers at risk from unemployment and lost hours due to COVID-19,” said Elise Gould, an economist at the Economic Policy Institute who also wrote about gaps in coverage as Congress moved the law toward passage.
“This closes those gaps, and that’s really important, particularly for low-wage workers,” Gould said.
Using federal money, the law vastly expands the traditional unemployment insurance system by allowing individuals to self-certify to a broad set of conditions and trigger coverage under “pandemic unemployment assistance”: those diagnosed with COVID-19 or awaiting diagnosis, those caring for a sick family member or a child whose school has closed, workers under quarantine or whose workplace is shut down, those ready to commence a job, and even workers forced to quit amid the public health emergency.
Other clauses bring in the self-employed, independent contractors, those seeking part-time employment, even individuals who do not have sufficient work history to qualify for unemployment insurance.
The bill also provides a weekly benefit of $600, in addition to the typical unemployment benefit, although only through July 31. The national weekly average benefit is $378.
O’Leary said that for those whose work history provides a low but sufficient earnings baseline, the law sets a minimum of 50 percent of the state average unemployment benefit. And anyone who draws a benefit under the program also should qualify for the full $600 supplement, he added.
However, the pandemic unemployment benefits may not be used at the same time as paid sick leave or family leave provided by the previous coronavirus response law.
The benefit serves a purpose in replacing income for many households at risk and alleviating anxiety triggered by a public health emergency, O’Leary said. But the total for low-wage workers may exceed 50 percent of income replacement, the threshold that unemployment programs generally use to mark disincentives to return to work, he added.
“On a crisis basis, I think it’s a very good way to get income replacement where it’s most needed in the economy, to households,” O’Leary said.
Disincentive to work?
David Wilcox, a senior fellow at the Peterson Institute of International Economics and former Federal Reserve economist, said his back-of-the-envelope calculation set break-even income at $56,700, suggesting that workers who earn less yearly could have an incentive to stay out of a job until the $600 weekly pandemic supplement runs out.
Yet he favors the added benefit, at least through July, as a response to government guidance to stay home for public health reasons, and as a way to avoid a “cascading set of economic and social catastrophes” that could inflict adverse consequences on low-income families.
“The fact that the individuals across the country are being asked to stay at home, the fact that workers by the millions are out of work through no fault of their own, is something society should respond to,” Wilcox said.
O’Leary said the benefit poses a long-term problem for a program based on traditional unemployment principles.
“Part of the difficulty is going to be turning this off, these generous additions, when it’s time to return to full strength,’’ he said.
Gould sees a greater risk in the expiration of the enhanced weekly benefit of $600 at the end of July. She doesn’t want important gains for low-income workers to vanish in the aftermath of the COVID-19 crisis.
“So let’s learn the lesson here and use the opportunity to extend those benefits to vulnerable workers, permanently,” Gould said.
Nor is it certain that July 31 will mark the effective end of the economic downturn. Gould would prefer to see some sort of automatic trigger used to determine how long the added benefits would be available.
“I do have some concerns about the longevity of some of the provisions, making sure we get on the other side of the pandemic, making sure families have enough resources to get them to the other side,” Gould said.
Both Gould and Wilcox expressed concern about the capacity of state unemployment agencies to cope with a rush of applicants who potentially could qualify under the broader entitlement, despite added federal funding to build up administrative capacity.
“I worry a lot about the capacity of the system to process the volume of claims they’re getting, to get money into the hands of people who need it very quickly,” Wilcox said.
Wilcox is less worried about the duration of the program, saying Congress can extend benefits if warranted by economic circumstances.
“I think what’s clear is that it’s an important step forward, and my hope is the Congress will regard this as an important step that needs to be monitored and adjusted going forward in light of actual experience,” Wilcox said.
Correction: An earlier version of this report misquoted Christopher J. O’Leary on eligibility for 50 percent of a state’s average unemployment benefit.