Millions of Americans are dealing with a shock to their incomes this week—the expiration of $600 weekly federal unemployment benefits—at a time when the jobless rate sits at levels not seen since 1940.
Democrats in Congress are keen on extending the payments for another six months while Republicans have voiced opposition, citing stronger-than-expected May and June jobs reports and claiming that the program provides a disincentive to return to work. On Monday, they proposed cutting benefits to $200 a week until the end of September, after which workers would receive no more than 70% of their previous wages. Democrats have criticized the proposal as inadequate and cast doubt on states’ technical abilities to implement such a plan.
The subsidies passed in March were something of an equalizer for jobless Americans across the country. If you were out of work, the federal government offered a $600 check each week as a benefit. And that was on top of any benefits your state offered. But because the cost of living across the U.S. and benefits provided by each state vary so widely, the $600 federal benefit disproportionately helped workers in low-wage cities and in states with stingy unemployment policies. Without an extension, formerly full-time workers in parts of the country will be scrambling to get by on as little as $235 a week.
The original emergency measure has been widely credited with helping prevent the rapid-onset recession from becoming an economic calamity. The payments contributed to a 13.6% rise in personal disposable income in April, more than double the previous monthly record set in 1975. One Harvard economist estimated that ending the supplemental payments would cut the U.S. gross domestic product by 2.5% in the second half of 2020, while former Federal Reserve Chairwoman Janet Yellen said that “it would be a catastrophe not to extend unemployment insurance.”
The value of the $600 benefit becomes clearer when you consider existing safety nets for jobless Americans.
A weekly unemployment check is usually a fixed percentage of a worker’s previous income, known as the replacement rate, subject to a maximum total. But there’s wide variation in the amounts states offer for both of these metrics.
While the replacement rate has a fairly wide range, the real differentiator is the maximum weekly amount. The U.S. average is $472, but Arizona and a handful of southern states offer no more than $275 in benefits per week. North Carolina, one of several states that reduced the duration of benefits following the Great Recession, cut its maximum weekly benefit from $535 to $350 in 2013. And the true value of any weekly check is effectively reduced if the recipient lives in a high-cost city.
In normal times, the distribution of benefits for median-wage workers across the country’s metropolitan statistical areas (MSAs) varies from $244 to $563 once living costs are factored in. A sizable proportion of cities fall below the midpoint of this range.
But with a flat pre-tax $600 check, fewer cities’ unemployed are huddled at the low end. Two out of three MSAs are now above the middle of the new range with just a third below the midpoint.
Because any dollar amount is effectively more money in low-cost, low-wage cities, the subsidy has an outsized effect for workers in those locations and has essentially reduced inequality in one component of America’s social safety net.
An example of this compares Morgantown, West Virginia—a relatively cheap place to live with prices 10% below the national average—to the Portland area in Oregon, which has slightly above-average living costs. The gap between wages in the two cities is about 25%. Before the $600 check arrived, Morgantown’s median-wage unemployed workers received a price-adjusted $118 less per week in regular benefits than their Portland counterparts. But since then, Morgantown workers have received a cost-adjusted benefit of $1,096 versus Portland’s $1,124. Their benefit gap shrank from 28% to less than 3%.
This result was more accidental than by design. Lawmakers initially wanted to provide each worker with an amount equating to 100% of their previous wages. However, antiquated technology in state unemployment systems made this impossible. Needing to act quickly, Congress opted for the much cruder tool of $600 payments for all.
A city’s cost of living also predicts by how much the $600 payments boosted a worker’s paycheck replacement rate. In cheaper places, wages tend to be lower, meaning any fixed bonus will replace a bigger chunk of one’s previous paycheck.
At less than $25,000 per year, the Brownsville-Harlingen MSA in Texas, located in the state’s southern tip and adjacent to the Mexican border, has the lowest median wage and some of the lowest living costs in the country. Regular unemployment checks only amount to $249 (unadjusted) for a typical worker. With another $600, those workers received the equivalent of 177% of their pay, more than triple the 52% outlined in Texas law.
Conversely, expensive cities tend to offer higher wages. That means $600 can only do so much to multiply one’s previous income.
Median-wage workers in the San Francisco-Oakland-Hayward MSA saw their incomes boosted relatively less due to their higher wages. They received 96% of their previous income instead of the usual 41%. Nevertheless, the $600 still managed to push median-wage workers’ incomes above 100% of their previous paycheck in all but four cities.
State policies are the other major factor that determined which cities’ workers were given the biggest lifeline. An additional $600 is far more valuable to an Arizona worker whose regular benefits are capped at $240 than an equally paid worker in Utah who’s entitled to $580, even if their cities have the same cost of living. One is effectively elevated from lower-middle to upper-middle wages, while the other is escaping poverty-level income. Workers in cities in the six states with maximum benefits of less than $275 were the biggest beneficiaries from this perspective.
Those who have seen the biggest economic boost from the $600 payments have the most to lose once they’re gone. With payments now expiring, workers in states with low maximum benefit amounts will suffer the biggest shock. That means the unemployed in Florida and Arizona will see their weekly benefits plunge to pre-pandemic levels of $275 and $240, respectively. Particularly unlucky are workers in the Miami-Fort Lauderdale-West Palm Beach MSA. They have the misfortune of living in an area with below-average wages, above-average prices, and in one of the least-generous states for unemployment benefits.
In addition, the timing couldn’t be worse. The fact that both Florida and Arizona are current hot spots for Covid-19 transmission portends an abysmal job market in the short term, worse even than the one the country as a whole is facing.
For many experts, the ad hoc approach that resulted in uniform payments is simply evidence of a broken system. Chad Stone, an economist at the Center on Budget and Policy Priorities, has repeatedly called for reforms in unemployment insurance, including expanded eligibility and higher benefit levels. “While the $600 is generous,” Stone wrote in a recent research note, he added, “normal levels of benefits are penurious for many workers.”