Personal Finance

GOP relief plan slashes unemployment benefits by 43% for average worker

Key Points
  • Senate Republicans want to replace a $600-a-week boost to unemployment benefits with $200 a week. 
  • That would represent a 43% cut in total state and federal benefits relative to the current enhancement. 
  • The extra $200 a week is meant as a bridge policy until states can implement a 70% income replacement formula, which labor experts say could be months in the making.
Senate Majority Leader Mitch McConnell, R-Ky., arrives at the U.S. Capitol in Washington, D.C., on Monday, July 27, 2020.
Sarah Silbiger/Bloomberg via Getty Images

Unemployment benefits would be cut by nearly half in a new plan proposed by Senate Republicans on Monday.

The policy would replace a $600-a-week federal boost, which lapsed over the weekend in all states, with a reduced benefit of $200 a week.

The plan would pay the new $200 subsidy through September. In October, that would be replaced by a different formula capping total state and federal jobless benefits at 70% of lost wages. 

The $200-a-week Republican plan would give the average worker about $521 a week in federal and state unemployment benefits, according to a CNBC analysis of Labor Department data for May.

That amounts to a 43% cut in total benefits when compared with the prior, $600-a-week policy, a temporary measure enacted in March under a federal relief law.

There's no evidence extra jobless benefits are stopping people from returning to work
There's no evidence extra jobless benefits are stopping people from returning to work

The proposal would impact nearly 32 million Americans currently receiving unemployment benefits — about five times the level of the Great Recession more than a decade ago.

'Difficult situation'

The experience would vary significantly between states, which set their own benefit levels.

In Oklahoma, for example, benefits would fall 62% to $244 a week under the Republican proposal — the most significant decline for any state relative to prior policy.

In Hawaii, the decline would be least severe — a 38% cut to $666 a week.

"That's a pretty difficult situation for people," Michele Evermore, senior policy analyst at the National Employment Law Project, said of residents in states paying lesser weekly benefits.

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"Right now, we know the $600 is working," she said. "I don't know what's different from the pandemic now than in March, except that it's worse."

Republicans want to cut federal aid for the unemployed due to the belief that it's too generous and offers a disincentive to find work, thereby tamping down on the economic recovery.

Democrats want to extend the $600-a-week benefit, warning of economic catastrophe without it.

Proponents of current policy say it's well targeted to those most in need of the money and is propping up consumer spending at a delicate time, when coronavirus infections are rising across the country and state officials have imposed new shutdown measures.

While the $600 payments, which pay some workers more than lost wages, may offer a disincentive to find work in a normal economy, it's not a big factor in the current recession when there aren't many jobs to be had, proponents said.

There are currently 14 million more unemployed workers than job openings, according to the Economic Policy Institute, a left-leaning think tank.

70% income replacement

The $200 a week flat payment would serve as a bridge for states until they can implement a more individualized structure for unemployed workers that replaces 70% of their lost wages. 

An unemployed worker who made $1,000 a week before the pandemic would expect $700 a week in federal and state benefits under that framework.

Here's what happens to the U.S. economy after extra $600 weekly unemployment benefits runs out
Here's what happens to U.S. economy after weekly $600 expires

Such a policy would constitute a significant cut in benefits for some workers, especially those earning lower wages, many of whom more than fully replaced their prior pay with the extra $600 a week.

Consider a fast food cook, for example.

Overall, fast-food cooks make $11 an hour, or about $452 a week, according to the Bureau of Labor Statistics. A 70% income replacement would give this person $316 in total unemployment benefits per week — about a third of what the average American gets with the current policy.

Republicans would put a $500-a-week cap in place, effectively limiting wage replacement for higher earners to less than 70%. 

This 70%-income-replacement policy would take a long time to implement due to technical challenges associated with antiquated computer systems, according to labor experts.

That means the $200-a-week flat payment would likely be in place for several weeks or months during the transition.

"It would be very difficult to do that," said Michael Farren, a research fellow at George Mason University, who estimated it could take states anywhere from two to five months to implement.

States unable to implement the new formula by Oct. 5 can apply for a waiver from the Labor Department to continue paying the fixed $200 a week for up to two months.