Is the $600 Per Week Extra Coronavirus Unemployment Actually Helping?

People wearing protective face masks wait in line outside NYC Health + Hospitals/Gotham Health Morrisania neighborhood health center, one of New York City's new walk-in COVID-19 testing centers, during the outbreak of the coronavirus disease (COVID-19) in
June 7, 2020 Topic: Politics Region: Americas Blog Brand: The Reboot Tags: CoronavirusUnemploymentCOVID-19CongressPandemic

Is the $600 Per Week Extra Coronavirus Unemployment Actually Helping?

One government office says that it would probably reduce employment in the second half of 2020, and it would reduce employment in calendar year 2021. 

Recently, the nonpartisan Congressional Budget Office (CBO) released a report titled “Economic Effects of Additional Unemployment Benefits of $600 per Week.”   

The unprecedented $600 per week federal supplements to all unemployment benefit checks, including those now received by traditionally ineligible workers such as independent contractors or gig workers, were created in March as part of the CARES Act. These supplements are authorized through July, but the House on May 15 approved legislation that would extend them through January 2021. The CBO report reviews the estimated effects of that extension, including the following: 

If the benefit of $600 per week was extended through January 2021, benefits would exceed 100 percent of potential earnings for roughly five of every six recipients of unemployment benefits from August 2020 to January 2021, CBO projects. (p. 4)

The additional $600 per week in benefits decreases the incentive to work more for people who expect to have lower earnings than it does for people who expect to have higher earnings because that additional amount is a larger percentage of lower-earning workers’ potential earnings. (p. 6)

In CBO’s assessment, the extension of the additional $600 per week would probably reduce employment in the second half of 2020, and it would reduce employment in calendar year 2021. The effects from reduced incentives to work would be larger than the boost to employment from increased overall demand for goods and services. (p. 7)

The report was requested by Sen. Charles Grassley (R-IA), the leading Republican on the Senate Finance Committee that has jurisdiction over the unemployment insurance (UI) program. It provides important background as Congress continues to debate whether to end, extend, or otherwise adjust these unprecedented benefits. It is worth reading in its entirety.

This article by Matt Weidinger first appeared in AEIdeas on June 4, 2020.

Image: Reuters.