The coronavirus pandemic shut down our nation’s economy. Since it started, more than 38 million Americans have become unemployed and filed for benefits.
As the number of out-of-work Americans climbed every week, a common belief was that while the numbers look bad, they remain temporary. As quickly as a bar, restaurant, or retail store closed down and laid off its employees, they would just as quickly bring those workers back as soon as the businesses reopened.
More and more states start to ease their restrictions and allow certain businesses to reopen. So now, we should soon see a dip in the unemployment rate. This happens as employers rehire employees, at least according to expectations.
But what happens when line cooks or laundry staff can make more money every week by not working?
It looks like we are about to find out.
Earning More Money By Not Working
According to researchers from the University of Chicago, two-thirds (68%) of jobless workers would bring home more money from their state unemployment insurance and $600 weekly supplement from the federal government. They take home more from these sources compared to what they would earn working a full-time job.
The researchers also found that 20% of unemployed workers would receive benefits that were at least double their lost earnings. They also estimated that the median earnings-replacement rate was 134% of lost wages.
Surprisingly, it’s not just blue states that are paying benefits that exceed lost wages. It is actually happening in every state. Unemployment benefits range from 129% of lost wages in Maryland to 177% in New Mexico.
Take Lainy Morse, a preschool teacher in Portland, Oregon. The child care center she works at closed two months ago. Now, with her extra $600 in weekly benefits, she’s in no hurry to go back to work.
“It’s terrible to say, but we’re all doing better now,” she told NPR during a recent interview. “It’s hard to think about going back to work in this pandemic and getting paid less than we are right now when we’re safe and at home in quarantine.”
Proposals and Debates
During the initial debate of the CARES Act, several Republican lawmakers pointed out that many workers can make more money while unemployed. They proposed an amendment that would cap unemployment benefits at the worker’s previous wage level and nothing more.
However, Treasury Secretary Steven Mnuchin said that if lawmakers propose another relief bill, it would need to address limiting unemployment benefits. “We do need to fix the quirk that, in certain cases, we’re actually paying people more than they made,” he said.
The challenge for lawmakers, and employers, is how to get people to return to work when the monetary incentive is to not head back to work.
There is a monetary limit to unemployment benefits. Also, the extra $600 in supplemental income will expire at the end of July. So at some point, there won’t be a financial benefit to staying unemployed. But if the coronavirus pandemic continues to rage into the summer, don’t expect workers who earn more money while unemployed to quickly rush back to work.