CARES MAY ACTUALLY DELAY THE RECOVERY
The federal government is doing everything it can do to deal with an unprecedented and frightening period in the nation’s history. It has rolled out programs that will relieve financial burdens on individuals and companies, spur investment, and incentivize employers to keep employees on the job.
One relief package in the CARES arsenal may, however, have unintended consequences. The CARES Act allows for an additional $600 per week to be paid to unemployed people until July 20, 2020. This part of unemployment will be funded by the federal government. This $600 greatly increases the weekly benefit to unemployed individuals, but may also work as an incentive for employees to stay at home, if the situation presents itself.
The table below calculates the regular unemployment benefits by state for an individual.The median weekly earnings, as calculated by the Bureau of labor Statistics was $49,764 per year. This was calculated through the 1st quarter of 2020 using the benefits calculator at https://fileunemployment.org/calculator. TPA then added the extra weekly CARES amount of $600. The total benefits of unemployment are then compared to the regular pay to determine in the individual is economically better off working or filing for unemployment.
Using the BLS median earnings, there are only 6 states in which it would make financial sense for people to work. In 45 states people are better off collecting unemployment. In some states the difference is quite substantial. The $600 per week is not available for a year, but looking at the difference annualized gives a better understanding of the difference. The annual difference in the following states is over $10,000 annualized: Maine $26,780, Connecticut $19,396, Iowa $15,288, Rhode Island $13,364, New Jersey $12,844, Hawaii $12,792, Colorado $11,544, Oregon $11,336, Kentucky $11,024, and Oklahoma $10,348.
There are many problems with this analysis. Most people want to work. In order to be eligible for unemployment one cannot refuse gainful employment. Earnings in states vary greatly, which is one of the reasons that why unemployment benefits vary from state to state.
Still, the overall concern is still valid for 2 reasons. (1) people will normally do what is their economic interests and (2) thoughtful employers who are having difficulty, can do the math and will know that their employees are better off not working for a period of time.
The possible consequence of making unemployment more attractive is a potential delay to when employees will return to work and hence a delay in the economic recovery.