Paid Not to Work: How Congress’s unemployment insurance boost hurts low-wage workers

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The American economy has experienced severe turbulence over the last several months, both due to COVID-19 and the consequences of the policy response to address the pandemic. Mandated state shutdowns of businesses across the nation caused economic activity to come to a screeching halt. More than 51 million Americans have filed for unemployment insurance (UI) benefits since mid-March— causing UI trust funds across the nation to plummet.

Unfortunately, the response to the crisis by federal policymakers contained in the Families First Coronavirus Response Act (FFCRA) and the Coronavirus Aid, Relief, and Economic Security (CARES) Act made the situation worse. These two pieces of legislation drastically expanded UI benefits through longer benefit duration, the suspension of work search requirements, the inclusion of newly eligible individuals, and a $600-per-week unemployment boost.

The $600 UI boost created a situation where unemployment pays better than work for most Americans. In fact, 68 percent of workers are being paid more on unemployment than they were earning previously, with one in five earning double their prior wages. This severe disincentive to work has sent shockwaves throughout the economy, making it more difficult for struggling businesses to hire workers, all while continuing to drain states’ UI funds. This is especially true for low-wage occupations, which have been severely hurt by this poor policy decision. Meanwhile, some in Congress are pushing to extend this temporary UI boost by another six months, which would have further negative consequences for an economic recovery.