The Benefits of Extending Enhanced Unemployment Compensation

Jun 5, 2020
Press Release
The COVID-19 crisis has taken a significant toll on our economy – more than 42 million Americans have filed for unemployment benefits during the pandemic. And the Congressional Budget Office (CBO) is currently projecting hard times ahead, with most workers on average earning less than they did before the pandemic when they do return to work, at least in the short term. Experts believe that many quarantine and social distancing requirements will need to remain in place until the United States either develops adequate capacity for testing and contact tracing, or until an effective vaccine or treatment is developed. The House-passed Heroes Act would continue critical, emergency federal unemployment benefits through January 31, 2021 to ensure that basic economic support is available until workers are able to return to their jobs safely.
Extending the $600 Federal Pandemic Unemployment Compensation (FPUC) beyond its July 31, 2020 cut-off date is beneficial to workers, families, and the broader economy. Specifically, the FPUC:
  • Offers a lifeline for jobless Americans, enabling them to afford necessities like food, rent, and health care during the crisis;
  • Provides assistance to all unemployed workers, including those who typically don’t qualify for state unemployment insurance, such as self-employed individuals, independent contractors, “gig economy” employees, and individuals who were unable to start a new job or contract due to the pandemic;
  • Ensures that workers who lost their jobs don’t face financial ruin simply for complying with public health measures during the pandemic;
  • Mitigates the racially disparate impact of COVID-19 by providing enough income for individuals living in high-risk communities to avoid work settings that are dangerous to them and their families;
  • Meaningfully supplements inadequate state unemployment benefits, which on average replace less than 40 percent of workers’ wages, and far less than that in many states;
  • Uses a simple, flat dollar amount to avoid delays in delivering this assistance due to state unemployment offices’ outdated technology and overwhelmed staff, in part due to the unprecedented volume of claims;
  • Has prevented a projected substantial reduction in consumer spending, which allowed businesses to sell goods and services and prevented a wave of defaults and foreclosures during the COVID-19 crisis; and
  • Helps avoid further community spread of the virus and allows for “flattening of the curve” across the nation.
More information specifically regarding the economic importance of extending the FPUC beyond July 31 can be found in a recently-released report by the Joint Economic Committee Democrats: LINK
Additionally, the CBO estimates that both the nation’s economic output and the wages for those who are working will be higher in 2020 if the FPUC is extended than if it expires.
Despite all these benefits, some detractors continue to raise questions about the FPUC’s efficacy and advocate for its sudden discontinuance in July. Yet many of the questions they raise don’t hold up with a bit of additional information and understanding. Some of these questions include:
Can workers “choose” $600 FPUC supplemental benefit instead of work when their employers recall them or new employers offer them appropriate jobs?
No. Workers who are recalled by their employers or for whom safe and suitable work is available are generally not eligible for state or federal unemployment benefits, and workers who are receiving appropriate hazard pay will generally earn more in wages than they would in unemployment benefits. The $600 a week supplement is intended to ensure that workers can follow public health best practices and avoid rebound transmission and a rise in death rates until the United States improves testing and contact tracing capacity, or until a vaccine or other effective treatment is available. And as the May 2020 jobs report illustrates, Americans choose to return to work when businesses reopen and jobs are available, even at a time when the FPUC is available.
But what about findings that five out of six workers will earn more from unemployment compensation than from work if the FPUC is extended?
The Congressional Budget Office currently projects that most Americans who return to work will earn less, on average, than they did before the pandemic because of a combination of employers paying low wages and employees not being able to work full-time or for the full six months. (The $600 supplement is designed to replace 100 percent of pre-pandemic wages for the average worker.) As a result of much lower potential earnings post-pandemic, CBO estimates that five out of six workers could receive more from unemployment benefits than they would from work. That calculation does not include the value of health, retirement, or other workplace benefits, or any opportunities employers provide for long-term advancement. CBO estimates that if the $600 is extended, workers who are able to return work will earn higher wages, on average, than workers will earn if the $600 is not extended.
Wouldn’t it be better to cap the FPUC at an amount equal to 100 percent of workers’ prior wages?
Ideally, unemployment compensation would be limited to what out-of-work Americans previously earned, provided that those previous earnings were at least a living wage. However, when asked about the feasibility of that policy, the  Department of Labor (DOL) responded that “States have had extraordinary challenges in implementing a payment in a flat amount on top of benefit payments in multiple programs. States would find it exceedingly difficult, if not impossible, to implement a unique payment amount in addition to the various benefit payments to which FPUC applies, from both a technology standpoint, but also with getting adequate information on which to determine the amount payable. This is particularly true for FPUC payments on top of the PUA benefits, where documentation of income has been very hard for claimants to provide and for states to secure from claimants.” DOL and some states also noted that requiring individual benefit calculations could delay benefit payments to workers by as much as six months.
How do the benefits of extending the FPUC outweigh estimates that an extension could cause our nation’s economic output in 2021 to be lower because of reduced employment incentives and larger deficits?
Extending the FPUC will help maintain consumer demand for American businesses and help avoid exacerbating the racially disparate impact of COVID-19 by forcing high-risk individuals to choose between financial ruin and returning to low-wage jobs that put them, their families, and their communities at risk. CBO now projects that the extension will also keep our economy stronger for the rest of 2020, and keep average wages for those who returned to work higher. When it comes to employment incentives, workers say that money is only part of the story – most of them place a higher priority on safety and available child care. CBO’s 2021 projection is inherently more uncertain than its shorter-term projections, but if it proves to be an issue as 2021 nears, FPUC is not the only tool available to Congress – in addition to maintaining consumer demand by keeping the FPUC in place, employment can increase in 2021 with policies that ensure workplaces are safe and that workers can access safe, affordable child care.
In the coming weeks, Democrats will continue to fight for the FPUC’s extension. More detailed information about the extension provision in the Heroes Act can be found HERE