Personal Finance

$600 in extra unemployment would fall to $200 or $300 a week, under Mnuchin plan

Key Points
  • Treasury Secretary Steven Mnuchin said a coronavirus relief package being debated in the Senate would replace $600 weekly enhanced unemployment benefits with a lesser payment.
  • The plan would replace around 70% of a worker's prior pay. That equates to an extra $188 or $310 a week, depending on certain factors, according to one analysis. 
  • Fewer workers would then theoretically collect more from jobless benefits than lost wages.
Treasury Secretary Steven Mnuchin arrives to the Capitol for a meeting with Senate Majority Leader Mitch McConnell, R-Ky., about the COVID-19 relief plan, on Thursday, July 23, 2020.
Photo By Tom Williams/CQ-Roll Call, Inc via Getty Images

Unemployed workers may see about $200 or $300 a week in extra jobless benefits when the current $600-a-week policy expires this month, according to an analysis of a proposal outlined Thursday by Treasury Secretary Steven Mnuchin.

Some Americans would still be able to collect unemployment checks that exceed their prior pay. But this dynamic would apply to far fewer people.

The change would cut aid at a time when coronavirus infections are increasing, states are reimposing shutdown orders and millions continue to apply for jobless benefits from week to week.

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The Senate is rushing to cobble together the next coronavirus relief package as aid that's propped up household income for millions of out-of-work Americans is scheduled to end in a few days' time.

A prior relief bill enacted in March gave workers an extra $600 a week, funded by the federal government, on top of their state payment.

70% wage replacement

Republicans want to lessen that subsidy, which is set to expire by the end of the month. Democrats want to extend it.

Republicans say it's a disincentive to find work since it allows some workers to get more money than they made from their prior job. In unemployment parlance, their wage replacement rate was more than 100%.

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The new policy will be "based on approximately 70% wage replacement," Mnuchin told CNBC Thursday morning.

That means a lesser enhanced benefit for the nearly 32 million Americans collecting unemployment benefits, which is about five times the peak of the Great Recession.

$200 or $300 a week

How how much less still isn't entirely clear.

Congress will likely derive a new benefit level using the current structure: a flat weekly payment, according to labor experts.

States can't handle a more complicated formula — namely, calculating an individual benefit level for millions of people based on 70% of their prior wages — in a timely fashion, they said.

That flat weekly payment would likely be around $200 or $300, depending on certain data points. 

Of course, the amount could change depending on the scope of legislative negotiations.

Senate Majority Leader Mitch McConnell, R-Ky., walks to the Senate floor on Thursday, July 23, 2020.
Al Drago/Bloomberg via Getty Images

Spokespeople for the Treasury Department and Senate Majority Leader Mitch McConnell, R-Ky., didn't return a request for comment. A spokesman for Senate Minority Leader Chuck Schumer, D-N.Y., deferred questions on the structure to McConnell's office.

Congress implemented the current policy based on the notion that $600 a week replaced 100% of lost wages for the average worker. 

Applying this same logic to Mnuchin's 70% wage replacement proposal, the average person could expect to get $310 a week from an upcoming relief package, according to a CNBC analysis.

(This analysis is based on $976 in lost weekly wages and a $373 weekly unemployment benefit for the average unemployed person in the first quarter of 2020, according to most recent data from the Labor Department.)

That strikes me as fundamentally unfair, that workers wouldn't get their full wages for something that was not their fault.
Ernie Tedeschi
economist at Evercore ISI

However, it's possible Republican lawmakers may derive the weekly subsidy amount using median figures instead of the average, said Ernie Tedeschi, an economist at Evercore ISI. That notion is based on ideas floated by Republican lawmakers in recent weeks pegging a weekly subsidy closer to $200, he said.

Mnuchin's proposal would mean a $188 weekly enhancement for the median worker, according to an analysis conducted by Tedeschi. The median represents the typical worker, or the one right in the middle of the pack.

(Tedeschi's analysis leveraged a calculator developed by economists at the University of Chicago, which found the median unemployment recipient received $350 a week in state benefits and had earned $769 a week from their job.)

'Fundamentally unfair'

This structure would significantly reduce the share of Americans who can theoretically collect more from unemployment than their lost wages.

The share would fall to 16%, according to Tedeschi's analysis. It's currently about two-thirds, researchers at the University of Chicago found.

However, research has shown the dynamic didn't keep people from returning to work in May and June.

Reducing aid after July would likely hurt Americans and the broader economy as people are forced to cut spending, Tedeschi said.

"That strikes me as fundamentally unfair, that workers wouldn't get their full wages for something that was not their fault and was in most cases due to a public health necessity," Tedeschi said of mandated business closures. "And it seems both economically unnecessary and economically hurtful to the U.S."

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