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Millions of Americans will fall off an 'income cliff' when extra $600 in unemployment benefits ends

Hundreds of unemployed Kentucky residents wait in long lines for help with their unemployment claims on June 19, 2020.
John Sommers II

Tens of millions of Americans who lost their jobs because of the coronavirus pandemic have been able to collect an extra $600 in weekly federal unemployment benefits over the past few months on top of the standard amount given by their state. For many households, the enhanced benefits have been a financial lifeline amidst record job loss and a burgeoning recession.

But on July 31, that enhanced benefit will end — and that could have dire consequences for millions of households.

Coupled with other coronavirus relief measures, the extra $600 in enhanced benefits has helped many Americans stay afloat — and even save more than usual — throughout the pandemic, with some economists calling it the "best" part of the economic response to the coronavirus. The $600 increase has been "one of the most effective parts of the CARES Act on both humanitarian and economic grounds," writes Heidi Shierholz, an economist at the Economic Policy Institute, a left-leaning think tank. 

Ending the benefits now would  be a "terrible idea," Arindrajit Dube, an economics professor at the University of Massachusetts Amherst, said in a tweet. Many households have already spent the one-time stimulus check they received and unemployment is expected to remain high through 2021. Without the extra $600, benefits will revert to the standard state amount, which averaged $378 per week in March. That's a sudden income reduction of 60%, without another stimulus check to fall back on. 

"It would cause pain among millions of families, drive down economic activity and impede our recovery," writes Dube.

Vulnerable people, including people of color, younger and lower income workers and women, would be impacted most.

Renters, who tend to be lower income and have lost a disproportionate number of jobs during the pandemic compared to homeowners, will also be hit particularly hard. When the supplemental benefits run out and tenants who are out of work receive only the base unemployment benefits, they will face an "income cliff," with many "unable to cover food, clothing and other living expenses," according to an analysis from the Urban Institute.

Should the enhanced benefits be extended?

Critics of extending the $600 a week federal benefit say that the system is easily susceptible to fraud and that the amount is so high — around 40% of workers could potentially earn more while unemployed than going back to work, according to a recent analysis — it discourages the unemployed from going back to work. The nonpartisan Congressional Budget Office recently released a report that concluded "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 $600 per week was added to unemployment as an incentive to get people to stay home during an unprecedented, "once-in-a-lifetime" health crisis, Matt Weidinger, a Rowe Fellow in Poverty Studies at the right-leaning American Enterprise Institute who studies unemployment insurance, tells CNBC Make It. Now that most states have reopened, the enhanced benefit "should expire as scheduled at the end of July," or policymakers need to provide another reason for it to be extended, he says.

"You want to help people, but you also want the economy to recover," says Weidinger. "The recovery will be slower and people will be less likely to recover if the bonuses continue."

Plus, other policies are still in place to help the record number of people collecting unemployment benefits, like a provision in the CARES Act that allows people to receive benefits for an extended 39 weeks, he says.

Tens of millions are still unemployed

Despite states beginning to reopen, roughly 21 million people are still unemployed. All of their jobs will not reappear overnight, no matter how eager people are to return to work. There are also still serious health concerns for people returning to work, as many states have done little to contain Covid-19. States that have reopened have had spikes in their coronavirus rates, putting workers at risk. 

Cutting unemployment benefits so drastically will mean less income, which means people will have less money to spend at restaurants, shops, hairdressers and other businesses that are reopening in many parts of the country. With fewer customers, many who were able to go back to work could find themselves out of a job, causing a second wave of mass unemployment. 

"Money spent on continuing crucial unemployment insurance provisions will help avoid a prolonged period of high unemployment that will do far more serious and persistent damage to the economy," writes Shierholz.

Democratic lawmakers say the enhanced benefits should be extended. Under the HEROES Act, passed by the House last month and currently stalled in the Senate, workers out of a job could collect the extra $600 until January 31, 2021. 

Republicans, however, believe the weekly payment should end, or be replaced with a "back-to-work" bonus, though it is unclear exactly what that would look like on the federal level. Idaho's Republican Governor Brad Little recently announced a plan to offer one-time bonuses of $1,500 for those who return to a full-time job, and $750 for those returning to part-time work. This would "level the playing field" between people who return to work and the unemployed who continue to receive the enhanced benefits, Weidinger says.

However, Shierholz and other economists say ending the enhanced benefit now would leave tens of million of households without the money needed to cover basic living expenses and help stimulate the economy. That could make the recession worse and stunt recovery, she writes.

"We can't turn off federal relief too early," writes Shierholz.

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