With Congress and the White House at a standstill over what to do with the federal $600-a-week unemployment insurance program, millions of Americans are about to waste a monetary lifeline amid the pandemic, and experts warn it can only damage an economic situation. Recovery.
The Senate Republicans’ proposal, which would reduce unemployment bills to $200 a week until states find a way to put in place a 70% wage replacement formula, can damage the economic recovery.
“If you were looking to revive the economy, you would want at least $600 a week in federal unemployment insurance,” says Jason Reed, a professor of finance at the Mendoza Business College at the University of Notre Dame. “If you eliminate or decrease this in any way, you are looking for a real decline in GDP.”
Mark Zandi, Moody’s leading economist, says the federal government’s $600 bills have the largest “economic money report” of any budget to date, rather than stimulus checks and payroll tax cuts.
In fact, if bills are reduced to $200 consistent with the week through the end of the year (which is conceivable if states struggle to upgrade their PC systems), U.S. GDP would see a 1.15% decline, some other millions of jobs would be lost, and the unemployment rate would rise to 0.6%.
If the benefits of federal unemployment insurance are completely eliminated, this would lead to a 1.3% drop in GDP, 1.1 million additional to-do losses, and a 0.7% unemployment build-up, Zandi says.
Any kind of delay or relief in unemployment insurance would be “absolutely devastating” and “continue through the U.S. economy,” Reed says.
“Unemployment is still firmly double-digit and is in a position to rise despite what lawmakers are doing now, not renewing progressive unemployment insurance temporarily turns out to be a bad political choice,” Zandi says. According to him, reaching agreement on the extension of unemployment benefits deserves to be “the sensible thing on the list” to avoid getting further into the recession. “Politics 101 says that with this degree of uncertainty, you deserve to be cautious about giving too much rather than too little,” he adds.
“Reducing unemployment benefits has real-time effects: it’s necessarily a pay cut that will be felt from a customer spending perspective,” says Mark Freeman, chief investment officer at Socorro Asset Management. Most Americans who get unemployment benefits spend them on groceries, rentals, and mortgages. If those bills are eliminated, the non-public intake is reduced, which is bad for the economy, he explains. “I still look forward to seeing some kind of proposal: both sides realize that the limit cannot be removed without having a serious negative effect on the economy,” Freeman says.
Experts are also increasingly skeptical about the ability of states to implement a wage replacement program, as proposed by Senate Republicans, in a timely manner. Many of them were already defeated through the $600-a-week program and were suffering from receiving the checks on time. An official at a state hard-working branch told Forbes this week that replacing a lump sum of $600 a week with a percentage of a worker’s past salary would take much longer to take effect. A spokesman for the Kentucky Labor Office estimated that it would take forty-five days for the state to expand a new program and another 3 weeks to verify it before the bills can, regardless. “It’s going to be chaos,” Zandi says.
The U.S. economy lost about 22 million jobs in March and April because the coronavirus pandemic caused a widespread business shutdown. Seven million jobs returned in May and June, but experts agree that much remains to be done for the recovery of the hard-working market and the U.S. economy in general.
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I’m a Forbes reporter founded in New York, covering the latest news, with a focus on monetary issues. Earlier, I wrote about making an investment for Money Magazine and I a
I’m a Forbes reporter founded in New York, covering the latest news, with a focus on monetary issues. Previously, I wrote about making an investment for Money Magazine and an intern at Forbes in 2015 and 2016. I graduated from the University of St. Andrews in 2018, majoring in foreign affairs and fashion history. Follow me on Twitter at skleb1234 or email me at [email protected]