In a few days, 30 million Americans will lose the $600 boost in unemployment insurance they’ve depended on every week. What happens next?
Annie Lowrey, staff writer and author of Give People Money, joins to explain. Listen here:
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What follows is an edited and condensed transcript of their conversation.
Katherine Wells: What is the fiscal cliff?
Annie Lowrey: When Congress passed the CARES Act, it did two really important things with the unemployment-insurance system. This is mostly a state program. When you pay taxes through your employer, you pay a little unemployment insurance tax and that raises money which then goes into a pool. The state administers those funds. So, the states have latitude, though not endless latitude, to set the benefit amount and the number of weeks of unemployment that you can receive. Then there are also rules about who gets unemployment. With the CARES Act, Congress created a special way for gig workers and other workers who normally aren’t covered by the unemployment insurance program to get UI. And then they also added a really large benefit. $600 a week for recipients. Which is a lot of money, especially when you add it in with the normal UI benefit that you’d also be getting. That $600 a week bump is going to expire [federally on July 31st, but in many states either July 25th or 26th]. 30 million people will take a huge pay cut and they will mostly drop down to just getting the state benefit amount.
The $600 benefit meant that most people were actually making just as much money or even a little bit more than they were making at their job. Now they’ll go down to making, in some cases half as much as they were before. This is a catastrophe for families that are really going to struggle to put food on the table and to pay rent. It’s also a really bad thing for the overall economy because all of that spending is just going to disappear.
Wells: Let’s start with that $600 a week. How has it been working? Do you have an example of what kind of impact that was having?
Lowrey: I talked to a ton of people for a story about this. One of the people I spoke with was Bridgit. She was a concert photographer and a nanny and both of those things are just gone, now. Absent the $600, she would be below the poverty line. She would be getting about $200 a week in UI and it would be really hard for her. She’s been applying for tons of jobs and she said she’s willing to take almost anything but people really aren’t hiring.
Wells: What has been the effect of all of these people getting that $600? If it goes away at the end of this week, what happens nationwide?
Lowrey: Normally income measures, the earnings of all of the households in a given state or given area, are very, very tightly correlated with the unemployment rate because you don’t make money if you’re not out working, right? What Congress did was so big, the amount of money they pushed in was so great, that the rise in the unemployment rate—from roughly four percent to now roughly fifteen percent, nationally—did not result in income losses for almost all families. That’s amazing.
Wells: That’s exactly what they intended to do, right? They were like, all of these jobs are disappearing and we need to make sure that people don’t sink into poverty and insecurity.
Lowrey: Exactly. Where you do see income losses, and this is important, is in people who weren’t covered by that UI expansion. I don’t want to make it seem like it was literally everybody, because it wasn’t and it’s still a pretty patchy program. A lot of people are still waiting on checks or they don’t qualify. But as a general point, Congress actually replaced all of the income losses for people who were covered by this and they really broadly expanded the number of people who are covered. And now that’s going away.
Wells: What happens on Friday?
James Hamblin: That’s the cliff, Katherine.
Lowrey: Yeah, so Congress made this whole thing temporary. They put an expiration date on it and that date is at the end of the week. Right now, even if Congress did pass something, the states would need to reprogram their systems to accommodate for that change. We’re already past the point where the states have the capacity to do that. These state UI programs are really underfunded. It’s not a centralized computer—these are really rickety systems and they’re individually run by the states.
So, this is going to go away. Congress has said, and this is Republicans and Democrats, that they don’t want it to drop to zero, but they’re fighting over how long to continue to benefit and how much to give. Republicans don’t want to give the full $600. There’s going to be huge differences in the macro-economic effect depending on what they decide to drop the benefit amount to and how long they take to decide.
Hamblin: Do you think that the $600 has been enough to encourage people to stay at home? Or should it be a different amount?
Lowrey: It seems to be true that the $600 has had that effect, anecdotally. But one thing that I heard from a lot of people was that they felt like they were getting really mixed messages from the government about how to handle their unemployment. Republicans have said that the economy needs to restart and people need to get back to work. But a lot of governors or mayors have said, no, no, no, you need to stay home. We still have this uncontained outbreak. We want you to be safe, stay at home.
I think that’s been really confusing for people. I know that there are people who are studying the public health dimensions of the economic response here because I think it’s intuitive and I think in time we’ll know whether the $600 let people stay at home in a way that helped suppress the virus. But we haven’t had coherent national messaging over what people should do and why. I think that that’s been really distressing for families.
Hamblin: That sort of clarity is so important. You’re going to have this amount for a given period and you can know that you’re going be taken care of. When people are talking about these plans going forward, are they talking about anything longer term? Or are we going to keep doing these patchwork extensions?
Lowrey: It seems like we’re just going to keep doing patchwork extensions. But there are currently proposals that would just take this out of Congress’s hands entirely. One proposal is to tie extra payments that come from the federal government during recessions to the unemployment rate. So, for as long as the unemployment rate is elevated in your area the payments would just come automatically. There’s an economist named Claudia Sahm who has developed, I think, one of the best proposals for this. In her version, there would also be a trigger. As soon as the unemployment rate starts going up, even if it’s not totally clear we’re in a recession yet, the unemployment insurance system would just expand, these additional payments would come, and then they could taper down in a kind of slow, clear manner as the unemployment rate dropped. That’s a completely sensible thing to do. There are also really great proposals to fix the administration of unemployment insurance by federalizing it and having the Department of Labor administer it. I think that’s a great idea but nobody is really talking about it and Republicans, for all sorts of reasons, would be really opposed to it.
We really don’t provide people with certainty. One thing I found when I was reporting this piece was people were hoarding the money because they were so unsure of whether it was going to go away entirely. Because the job losses have been concentrated among low-wage Americans, we’re talking about the basics. Rent and food and housing. This is preventing people from slipping into material poverty.
Wells: What happens next week when these people are not able to make rent? What is it going to look like?
Lowrey: It’s going to be bad. We don’t know how bad because we don’t know how much they’ll replace the $600 with and how fast it will happen. But I think you will see an effect on consumption of the basics really quickly: buying gas, buying groceries, paying the electric bill. A lot of places still have ordinances preventing evictions but those are expiring and, in some cases, they’re not enforceable. A lot of places have pushed utility companies not to do shut-offs during this period but that’s not everywhere and, in some cases, those aren’t enforceable.
I think you’re going to see a lot of stories of people who end up sliding into destitution. Those are the stakes here. The scale of how much of that happens—the breadth and the depth of the misery—is up to Congress. Congress really buffered the country from a lot of the worst effects of the recession but we’re really going to feel it like a recession if this $600 goes away and they don’t send out additional economic impact payments or do more to rescue businesses.
Wells: What is the right amount to give people? What do you think should happen to minimize the economic chaos moving forward?
Lowrey: Insofar as there’s any downside to the $600, it’s that it’s probably having some pretty minor effects in terms of discouraging people to go back to work who otherwise would. That’s real but it’s probably not a big deal right now. Other than that, it’s just a cost. And it costs a lot but this is not the time to worry about that cost. I don’t see any reason to cut the benefit amount. I really don’t. I don’t think there’s any way they’re going to expand the $600 payment, but I do hope that they keep on pushing a lot of money out because it’s one of the only good things in the economy right now and it’s really important that it continue. I think it is disgusting and really disheartening that Congress has known about this cliff for a long time and they’ve chosen to just drive off of it.
