- At the end of July, the extra $ 600 weekly unemployment insurance for unemployment, established by the CARES Act in March, expired and immediately forgot the pay for millions of unemployed Americans.
- The benefit not only supported those who were out of work due to the crisis in coronavirus, but turned the early months of the economic recovery from the recession of pandemic, economists say.
- Now, Congress is fighting over the next round of incentives. In the meantime, millions of Americans are wondering how they will end up.
- Visit the Business Insider website for more stories.
When the extra $ 600 weekly unemployment benefit expired at the end of July, Charissa Ward, a furloughed Disney server in Florida, knew she could not cover all of her expenses.
Now she will only get the benefit of the state of Florida, a maximum of $ 275 per week before taxes and among the lowest in America. Ward has been out of work since mid-March, officially on furlough since April, and does not know when she may return.
The $ 275 a week “really pays nothing. I can not even cover my mortgage payment, let alone food, my payment for cars, my insurance, basic electricity, you know, nothing,” the mother of three told Business Insider. “We’re not talking about going on vacation here, we’re talking about survival.”
Ward is one of 31 million Americans who rely on unemployment benefits, a safety net that is getting thinner now that the federal government is not providing any extra money. The typical unemployed person is set to receive about $ 330 each week, an amount that varies greatly across the country.
In March, Congress shrugged to design and pass on a relief package as sweeping order-by-place orders scrapped businesses in the U.S., kept people at home, and led to millions of Americans losing their jobs. Under their terms: a federal supplement of $ 600 per week for state unemployment checks, intended to completely replace the lost income of laid-off workers.
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That government spending played an enormous role in rescuing a pandemic-affected economy from collapse. Experts credit the benefit of backstopping income loss and improving consumer spending in a recession, along with people providing enough money to buy groceries and pay rent and other monthly bills. Some said it helped increase poverty.
“It’s so clear from the data we have in hand and from the research that is being done that $ 600 [helped] support the entire economy, “said Claudia Sahm, director of macroeconomic policy at the Washington Center for Equitable Growth, recently told Business Insider.
The signs of a recovery
Evidence that the extra $ 600 boosted the economy appeared in a number of economic indicators. In April, U.S. consumer spending declined, but revenues increased by a record 10.5% due to payments under the CARES Act. A month later, U.S. consumer spending hit an all-time high of 8.2% as people rushed to spend their incentive and unemployment checks.
In addition, retail spending was strong in May, when it jumped a record 17.7%. That strength remained in June, when retail sales increased 7.5%.
That continued strength is “a good sign that unemployment insurance bore a lot of responsibility for those numbers,” Ernie Tedeschi, an economist at Evercore ISI, told Business Insider.
There is also evidence in high-frequency data suggesting that the added benefit of the UI eliminates consumer spending and the U.S. economy. Data from Harvard-based research group Opportunity Insights show that low-income household spending has almost recovered to pre-pandemic levels, up only 2% from February.
On the flip side, high-income spending is still 10% down from that of the pandemic.
“Consumption among low-income households has been so strong, despite the fact that low-income households have been disproportionately affected by the pandemic,” Tedeschi said, adding that “there is ample evidence that our benefits for unemployment insurance do their job” committed to the ground among unemployed workers. “
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That spending is important for the overall economic recovery, because consumption is about 70% of the U.S. gross domestic product. Consumer spending also gives strength to the labor market – as people shop, businesses profit more, and in turn additional workers can expand and hire.
“So much of our economy did not fall 60% and 33% in the last four years was this additional infusion into government household income,” Daniel Alpert, senior colleague and deputy professor at Cornell Law School, told Business Insider. A lack of continued support will “deepen the seriousness and prolong the duration of this crisis,” he said.
The fierce political clash over $ 600
Republicans and Democrats hold dueling views of the economic effects of the federal advantage. Shortly after it was implemented, many GOP legislators opposed the summer renewal. At the end of May, Senate Majority Leader Mitch McConnell was forced to step down.
The GOP pushes instead to reduce the benefit to a lower weekly amount. Many conservatives argued that since the bulk pay allowed many workers to earn more from the government than their previous jobs, they encouraged them to stay out of work.
“There were certainly companies that faced obstacles to getting their workers back. In the long run, you never want to encourage people not to work,” Rachel Greszler, an economic expert at the Conservative Heritage Foundation, told Business Insider.
She said extending the $ 600 benefit would have “long-term detrimental effects” on employment levels.
Democrats are pushing to resume payments through January, saying the economy remains weak due to the ongoing pandemic and jobs are bad. There are currently five unemployed for every job opening.
“We are seeing spikes all over the country, unemployment in many places,” Democratic sen. Ron Wyden of Oregon, a supporter of the $ 600 expansion, told Business Insider in late July. “It’s so bad, companies are letting workers off again.”
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Five studies were recently published to examine the impact of the $ 600 supplement on the economy. No one found evidence that the benefit is broadly discouraging work among the unemployed.
The declining federal advantage has been a major source of friction in stimulus negotiations between congressional Democrats and top White House officials. Talks have been postponed for more than two weeks with a few signs of progress.
President Donald Trump on Friday threatened to embrace Congress and take executive action on improved unemployment benefits among other priorities as negotiations with Democrats collapsed. But it remains unclear what unilateral authority he can draw when Congress controls spending. It increases the risk of legal challenges that could delay federal aid.
“You’re trying the last way to make a dollar longer than it was $ 100 dollars”
The timing of the next incentive bill is important, as millions of Americans go without the necessary extra $ 600 each week while Congress debates the package.
The uncertainty of the timeline makes it even harder for unemployed Americans to plan for the future.
Tia Ferguson, also a mother of three in Columbus, Ohio, now receives $ 171 in unemployment insurance each week. Without the extra $ 600, she is not sure how long that, her savings, and her husband’s income from a new business will last.
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“I’m actually scared to answer that question because I realistically do not know,” she told Business Insider. “It’s not enough to sustain the life we had for 13 years even remotely.”
The substitute teacher was furloughed in March when schools closed, leaving 11 weeks before she received her first unemployment check due to delays in the state system, she said. When she finally started receiving UI, she paid many of her bills, including her mortgage, utilities, electricity and gas ahead of time to support her family because she did not know when she would be able to return to work.
She has also cut her budget as much as possible – swapping lunch meat for peanut butter in the grocery store, and checking her children’s screen time to keep electricity bills low.
“You’re trying the last way to make a dollar longer than it was $ 100 dollars,” she said. Yet she does everything she can to maintain a sense of normalcy for her children, she said. In addition to the coronavirus pandemic, her family was dealing with another tragedy this year – in January she had a dead baby.
“I do not want it to be the case that in a year that they lost their baby brother, they lost the house they grew up in both,” Ferguson said.
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