What could replace the $600 weekly unemployment boost as new jobless claims rise

Demonstrators rally near the Capitol Hill residence of Senate Majority Leader Mitch McConnell, R-Ky., to call for the extension of unemployment benefits on Wednesday, July 22, 2020. The benefit, created by the CARES Act, is set to expire on July 31.
Tom Williams | CQ-Roll Call, Inc | Getty Images

The number of Americans filing for unemployment ticked back up after 15 weeks of trending downward, with 1.4 million people submitting initial jobless claims for the week ending July 18. Roughly 1 million more freelancers, independent contractors, gig workers and people previously not eligible for unemployment filed for benefits under the Pandemic Unemployment Assistance program.

The rebound in people filing new unemployment claims comes as coronavirus cases surge across the country and states stall or reverse reopening plans. And the weekly $600 benefits lifeline expires after this week.

With the clock ticking for more than 25 million Americans set to lose their enhanced benefit soon, the Senate returned from recess this week and began discussing a new round of coronavirus relief aid. Sources told CNBC Wednesday that Republican lawmakers were considering extending enhanced unemployment pay at $100 per week, or $400 per month, for the rest of the year. By Thursday morning, Treasury Secretary Steven Mnuchin said the Republican coronavirus relief plan will extend enhanced unemployment "based on approximately 70% wage replacement." 

State-administered unemployment aid aims to replace about half of a worker's previous wages, though it averages out at around 45%. Nationwide, that comes to an average unemployment benefit of around $320 per week, according to data from the U.S. Department of Labor. However, sums range widely depending on the state, with Washington paying $497 per week on average and Oklahoma paying just over $44 as of May 2020.

It's unclear how Republicans would structure the plan to replace 70% of a worker's previous wages. The original $600 per week benefit was approved in March because lawmakers decided outdated state unemployment systems couldn't handle processing more targeted payouts to calculate a 100% wage replacement per worker. According to a CNBC analysis, a 70% replacement rate could come out to a flat enhancement of $310 per person per week.

Due to the current size of the $600 boost, roughly two in three people earn more on unemployment than they did from previous wages. Republican lawmakers are critical of extending unemployment aid at this rate, saying it discourages people from going back to work. Many economists disagree with the assertion.

Still, even unprecedented spending on pandemic relief aid, which has kept 10 million Americans out of poverty this year, has still left many struggling to make financial ends meet. Nearly one-third of households didn't make their housing payment for the month of July.

Senate leaders hope to release their legislation as soon as Thursday, at which point it will need to move through the Democrat-controlled House, which passed its own relief package in May, known as the HEROES Act, that extended the $600 unemployment pay through 2021.

Other lawmakers, including House Minority Leader Kevin McCarthy, expect a final bill to be signed by August, which will likely result in a delay of Americans receiving a new round of benefits for several weeks. Though the $600 weekly benefit was signed into law March 27, it took roughly a full month for all 50 U.S. states and the District of Columbia to start paying out the benefit.

With many households set to see a precipitous drop in aid in the coming weeks, financial experts suggest Americans prepare a new budget, apply for hardship programs, find new income streams and more before the next round of stimulus aid is approved and released.

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