Extra $600 in unemployment benefits doesn't keep people from working, analysis finds

Denitsa Tsekova
·Reporter
·5 mins read

One big reason critics don’t want to extend the coronavirus unemployment benefits is they’re worried the extra $600 per week will keep Americans from returning to work.

But that’s far from the case, according to a new analysis of workers who made more while unemployed.

The findings could help bolster the case that the jobless aid created under the CARES Act and is set to expire at the end of the month should be extended.

Seven in 10 workers who returned to a job in June were making more on unemployment insurance than their previous wages, according to an analysis of the Current Population Survey from Ernie Tedeschi, an economist at Evercore ISI and a former Treasury economist in the Obama administration. Around 65% of those who went back to work in May also took in more from unemployment, he found.

“There was no relationship in May or June between how generous your unemployment insurance was and whether or not you took a job in May or June,” Tedeschi said. “There were people who had extremely generous unemployment and were making much more on [unemployment] and yet they took a job.”

Seven in 10 workers who returned to a job in June were making more on unemployment than their previous wages, according to an analysis of the Current Population Survey by Ernie Tedeschi. Chart: Courtesy of Ernie Tedeschi
Seven in 10 workers who returned to a job in June were making more on unemployment than their previous wages, according to an analysis of the Current Population Survey by Ernie Tedeschi. Chart: Courtesy of Ernie Tedeschi

‘A disincentive to work’

The CARES Act provides an additional $600 in weekly unemployment benefits on top of workers’ regular state benefits. The extra unemployment benefits expire on July 31 and, so far, it appears an extension of the full $600 is unlikely to happen.

An unintended side effect of the extra benefits was that many lower-earning workers received more income on unemployment than from their usual wages.

Two in 3 unemployed Americans were earning more with the additional $600 per week than when employed, according to a paper from Becker Friedman Institute at the University of Chicago.

WAU.S. President Donald Trump (R) leaves the podium after speaking to journalists with National Economic Council Director Larry Kudlow the Brady Press Briefing Room at the White House July 2, 2020 in Washington, DC. (Photo by Chip Somodevilla/Getty Images)
WAU.S. President Donald Trump (R) leaves the podium after speaking to journalists with National Economic Council Director Larry Kudlow the Brady Press Briefing Room at the White House July 2, 2020 in Washington, DC. (Photo by Chip Somodevilla/Getty Images)

Congress is expected to work on another relief package this week, which could address the expiration of the $600 weekly bonus. Some Republicans and the White House have been reluctant to support extending the benefits, criticizing the additional aid as a “disincentive” to work, as White House economic advisor Larry Kudlow put it in June.

“We’re paying people not to work,” Kudlow told CNN. “It's better than their salaries would get.”

Treasury Secretary Steven Mnuchin said on Monday that the too-generous bonus is the No. 1 issue that needs to be fixed.

Read more: Do you have to pay taxes on unemployment benefits?

“We’re going to make sure that we don’t pay people more money to stay home than go to work” he said.

President Donald Trump has also referred to the unemployment benefits as “a disincentive to work.”

“It was still money going to people and helping people, so I was all for that,” Trump told Fox Business. “But we want to create a very great incentive to work.”

‘It’s not holding back job growth’

But the numbers aren’t bearing out the disincentive theory, according to Tedeschi. Even those making a lot more while unemployed went back on the job. Almost 1 in 5 workers who returned to work in June were making two to three times more on unemployment than their prior wages.

“Right now in the U.S. economy, generous unemployment insurance is not a binding constraint on the labor market,” Tedeschi said. “It’s not holding back job growth.”

Diana Yitbarek, 44, of Washington, DC, stands outside the DC Department of Employment Services, after trying to find out about her unemployment benefits in Washington, DC, July 16, 2020. (Photo by SAUL LOEB/AFP via Getty Images)
Diana Yitbarek, 44, of Washington, DC, stands outside the DC Department of Employment Services, after trying to find out about her unemployment benefits in Washington, DC, July 16, 2020. (Photo by SAUL LOEB/AFP via Getty Images)

One reason is that most workers don’t have the option to refuse to return to work if their employer offers their position back under current unemployment insurance rules, Tedeschi said.

If an employee refuses to return to work and isn't protected by the Americans with Disabilities Act or Occupational Safety and Health Act, they likely will lose access to unemployment benefits, unless they have a “good cause.” A good cause includes situations such as having a health issue or needing to care for a close family member who has a health issue.

It's going to go away’

Additionally, getting a job in this tough job market may bring more stability in the long term for workers than getting paid more on unemployment, Tedeschi said.

“Workers have a more sophisticated perspective than is implied by the simple story that they're not going to take jobs because they're making more on unemployment insurance,” he said. “Workers understand that emergency unemployment is a temporary program. It's going to go away.”

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Even if the extra unemployment insurance is extended — potentially with reduced benefits like a $200 or $300 a week — it’s still temporary.

“They know that a permanent job is probably more stable than this emergency unemployment insurance,” Tedeschi said. “A lot of them are making the calculation that it's in their interest to take jobs when they're available.”

Denitsa is a writer for Yahoo Finance and Cashay, a new personal finance website. Follow her on Twitter @denitsa_tsekova.

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