When the economy began to crash in March as a result of the coronavirus pandemic, perhaps the hardest hit group of people in the population were workers. After hovering around record lows of 3.5% to 3.7% for months, the unemployment rate jumped to 4.4% in March 2020 and then skyrocketed to 14.7% in April. Since then it has only come down slightly, to 13.3% in May and 11.1% in June. Since February, the number of unemployed people in the country has grown by 12 million, with now nearly 18 million Americans out of work. In some places in the country, more than 25% of the local population are without work, rivalling the unemployment rates of the Great Depression.
When workers are unemployed, of course, there are countless damaging ripple-effects throughout the economy. Retail spending plummets. Travel and tourism dries up. Debt soars. Loan defaults increase. Rent payments stop and evictions rise. Mortgage payments stop and foreclosures rise. Supply chains—from wholesalers to farmers and from manufacturing to importation—are disrupted. In an effort to mitigate at least some of that damage and to help American families survive the crisis, Congress passed the bipartisan Coronavirus Aid, Relief, and Economic Security Act (CARES Act) on March 27. This bill pumped $2.2 trillion in economic stimulus into the country in the form of assistance of small businesses, payroll protection, direct payments to Americans, and increased federal unemployment payments to supplement state unemployment. The CARES Act also allowed states to extend unemployment benefits to groups of workers not traditionally covered by state unemployment, including independent contractors.Read More »
The debate over what to include in the next coronavirus relief package is, of course, falling very much along partisan lines. House Democrats in May passed through that chamber the Heroes Act, which extends the $600 weekly federal supplement for out-of-work Americans through January 31, 2021.
That proposal, however, has stalled due to opposition from Republicans in the Senate, who claim that such an amount of money induces unemployed Americans not to return to work. Many economists, however, point out that while the numbers of unemployed have skyrocketed, the number of available jobs has remained largely unchanged: even if those workers wanted to get back to work, there are too few qualified openings for them all. Other economists also note that the fact that some Americans opt to collect the increased out-of-work payment instead of going back to work is a red flag that wages—particularly hourly wages—are far too low in most sectors of the economy and do not accurately reflect the real cost-of-living. And numerous public health officials have pointed out that encouraging people not to go into work and further spread the coronavirus is also important if the tide of the pandemic is to be turned.
While some Republicans want to eliminate the $600 supplement entirely, or reduce it to $300, many of the proposals that are now being discussed in Congress for attempting to alleviate the employment crisis presume that offering an inducement to workers to ignore the wage gap might encourage them to return to work. For example, GOP senator Rob Portman of Ohio and ranking GOP member of the House Ways and Means Committee, representative Kevin Brady of Texas, have proposed providing a $1,200 payment to any worker who accepts a job. In Idaho, a similar return-to-work incentive prompted requests for more than 10,000 new hires on its first day. Some economists, however, point out that such a one-time payment would likely have to be much higher in order to motivate unemployed workers to potentially risk their lives or the lives of their families by returning to dangerous working conditions in states where the pandemic continues to surge.
A more nuanced plan has been proposed by the Democratic leader in the Senate, Chuck Schumer of New York, and Democratic senator Ron Wyden of Oregon. Their bill would link the amount of enhanced federal out-of-work benefits available in a state to the specific unemployment rate in that state. If the state’s three-month average rate stays over 11%, unemployed workers in that state would continue to be eligible for the $600 federal benefit. For every percentage point decrease in the state’s three-month average rate, that supplemental payment would be reduced by $100. Once the state’s rate falls below 6%, the federal benefit would end.
The Senate Republicans were supposed to release their final full plan on July 23, but facing internal divisions and no clear leadership from the White House, the party postponed the roll-out in order to have some further discussions. Ideas floated by the Trump Administration—such as a payroll tax cut (which, Democrats and Republicans both argued, would not help someone who is unemployed) and a “wage replacement” payment of up to 70% an employed worker’s pre-pandemic earnings—have been non-starters on both sides of the aisle. Democratic leaders in both houses have complained that their Republican counterparts have yet to provide sufficient details and that too many parts of their plan remain vague and unclear.
Some parts of the new relief bill, however, seem to be specific and fairly well agreed upon. There could be as much as $105 billion for schools, more money for COVID-19 testing and contact-tracing, more funding for small businesses, and another round of direct payments of $1,200 to Amercians by August. Other parts, like the funding for out-of-work Americans, are still the subject of partisan disagreement. For example, the Democrats have proposed including $1 trillion in state and local aid, to help government at the ground level provide public services in the face of plummeting tax revenues, but Republicans have opposed that plan. Republicans want liability protections so companies and other employers that require employees to return to work in person cannot be held responsible if those people then became infected with COVID while at work, but Democrats oppose that idea. Even the income ceiling for who would qualify for the $1,200 direct payment is the subject of partisan debate: given the lack of significant improvement in the economy, Democrats argue that the ceiling should remain the same as in the original CARES Act (up to $75,000 per year) while Republicans want to lower the ceiling to just $40,000 per year. In total, the Republican plan would come to $1 trillion while Democrats have proposed programs that would cost about $3 trillion.
As for the unemployment plan, without some kind of meaningful and effective solution, economists almost unanimously warn that the country could be heading for a “double-dip” recession as millions of Americans and their families plunge into poverty
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