On March 27, Congress passed a generous unemployment insurance (UI) benefits package to aid workers who lost their jobs as a result of the COVID-19 pandemic. The CARES Act not only expanded coverage to various workers who normally would not qualify for UI, but also temporarily added $600 to weekly benefit amounts. Senate Minority Leader Chuck Schumer (D-N.Y.) called it “unemployment insurance on steroids.”
But as governors make decisions about reopening their economies, a debate is raging about whether UI benefits under the CARES Act will slow down recovery by discouraging people from going back to work. Senator John Cornyn (R-Texas) said, in a statement, “We’ve heard from worried hotels, restaurants, and barbershops in Texas unable to rehire their workers and now at risk of losing their P.P.P. loans they need to survive.” In Kentucky, a coffee shop owner told an NPR reporter that the additional $600 per week put her in a position where she could not “compete with [employees] being at home, unemployed.” Similarly, a Fox News piece interviewed an essential worker who was resentful that others are being paid to not work: “I prefer to work, but sadly I’d make more staying home.”
There are several misconceptions about “unemployment insurance on steroids” baked into these criticisms. First, critics portray the situation as if the worker has a choice on whether to collect benefits or return to work, and that workers will choose to remain unemployed if the UI benefits are higher than their pay. Second, they suggest that employers don’t have the power to retain workers or call them back to work if they want to, and that there are no other options for employers but to “compete” with the benefit levels. Third, they suggest that public benefits available for nonessential workers are making essential workers feel undervalued.
This piece clarifies those misconceptions about UI and the CARES Act, and examines if expanded UI was a legitimate policy response to the COVID-19 pandemic.
Workers can’t just quit and collect unemployment benefits
Despite what critics may say, generally speaking, a worker cannot quit his or her job and still collect UI benefits. Workers are only eligible for UI if they lose their job or hours involuntarily (for a reason other than their own misconduct), or if they stop working for “good cause.” States vary in their interpretation of “good cause,” but a typical reason that would be a worker who is experiencing domestic violence or because an employer asks a worker to engage in illegal activity.
The COVID-19 pandemic introduced an unprecedented set of special circumstances into the everyday decisions of workers and business owners. In response, the CARES Act expanded the definition of a “covered individual” for UI benefits to include several specific criteria that were unique to this public health emergency (see text box). The criteria are quite narrowly defined and pertain to reasonable situations that would jeopardize an individual’s life or safety, affect their ability to fulfill primary care responsibilities (such as child care), or directly endanger the lives of others.
The expanded criteria do not cover several situations that many people would consider a legitimate reason to stop working. For example, if someone lives with an older parent who is a member of a vulnerable population, UI under the CARES Act will not cover them unless the family member contracts COVID-19.
Feeling unsafe about going to work is also not a qualifying reason, unless a health care provider has directed that worker to self-quarantine. Employers have very limited liability for infectious disease spread; there is no provision that explicitly allows a worker to stop working and collect benefits if, for example, the employer is unwilling or unable to provide adequate personal protective equipment (PPE). There is also no provision for workers who rely on public transit, even as it currently operates at reduced service levels and carries a higher viral risk.
Employers have options besides full layoffs
In addition to confusion about whether workers can “decide” to collect UI benefits, critics seem to be unaware that employers have multiple options at their disposal besides full layoffs. “I am opposed to requiring the least well off to remain completely unproductive in order to receive that help,” wrote the American Institute for Economic Research’s William J. Luther in a piece critiquing the $600 per week UI increase. “Give them money. But let them work as soon as it is safe to do so.”
Likewise, an Arkansas sawmill operator told Fox News that he polled his employees to see who wanted to stop working and collect unemployment. Although it was a well-intentioned gesture to ask workers’ opinions, it seems that he incorrectly posed the question as a zero-sum choice: either he lays them off so that they can collect benefits or he keeps them on at lower pay. But it’s not that simple.
When there is a temporary drop in demand, employers can also choose from two more nuanced options rather than a full layoff, both of which provide employees with compensation:
- Partial UI. Workers whose hours or earnings have been significantly reduced qualify for “partial” benefits under both regular UI and Pandemic Unemployment Assistance (PUA). Normally, the benefit levels for partial UI may be too low to make it worthwhile to apply or a worker may have difficulty meeting the income requirements. Currently, the additional $600 per week makes applying worthwhile, and PUA covers workers who do not meet income requirements for regular UI.
- Work share. In 27 states (and more under new CARES Act provisions), the employer can avoid full layoffs through a little-known program called short-time compensation, or “work share.” That program allows employers to spread hour reductions across staff on a temporary basis and provides compensation to workers for lost hours (including the additional $600 per week). Likewise, employers can rehire workers on reduced hours through work share if they negotiate such an arrangement with the state—and workers continue receiving benefits for lost hours. Regular work share benefits tend to be more generous than partial UI. The CARES Act offers states incentives to expand work share, including those that did not have the program before the pandemic.
By keeping the employees on payroll, the employer can meet Paycheck Protection Program (PPP) reimbursement requirements and, when ready, position themselves to ramp up operations more quickly without having to recruit and train new talent. Work share also increases employee morale.
Unfortunately, we have a cultural pattern of overemphasizing the most extreme solution—layoffs—rather than these nuanced alternatives. A bold embrace of work share could help us curtail the tremendous economic and psychological damage of mass layoffs to businesses, workers, and communities. Arguably, “work share on steroids” may have been a better choice for policymakers to pursue from the start, potentially averting the devastating delays in getting relief to Americans who need it due to crashing state UI systems.
If deployed in a user-friendly way, the U.S. could switch employers to a modified work share model so they could partially rehire and adjust employee hours as needed while keeping employee earnings relatively stable until a COVID-19 vaccine is available. Still, expanding this policy tool doesn’t negate the need for a generous expansion to UI benefits as an underlying safety net.
The CARES Act doesn’t change employers’ authority to rehire workers
As the conversation about reopening the economy heats up, critics have made the mistaken assertion that expanded UI benefit levels will interfere with an employer’s ability to rehire workers they previously laid off. “It’s easy to see why people would not come back right away,” one restaurant owner told a reporter at Syracuse.com. “You have people, especially in the New York service and hospitality industry, who are making more than they ever have.”
This assertion is patently false. Under the CARES Act, as in regular UI, an employer can ask an employee that they previously laid off (or reduced hours for) to return to work. If the employee refuses to return, they will lose their eligibility to collect UI benefits unless they meet one of the CARES Act criteria detailed in the text box above (or their state’s “good cause” standard). In Ohio, about 600 employers have reported approximately 1,200 workers to the state for refusing to return to work. Workers who continue to collect UI benefits after their employer has asked them to return to work can be prosecuted for fraud.
Although employers can call workers back, the pandemic—not the CARES Act—introduced some special circumstances unrelated to benefit levels that legitimately interfere with a worker’s ability to work. Reports of employers struggling to rehire workers are likely instances where the worker has a legitimate reason to stay home, such as having contracted COVID-19 or having children home from school.
The $600 weekly increase may impede recruitment of low-wage workers—temporarily
While changes to UI under the CARES Act don’t alter many aspects of employers’ ability to lay off and rehire workers, the generous benefit levels are likely to pose challenges for businesses that need to recruit new low-wage workers.
A worker earning the federal minimum wage of $7.25 per hour who works 40 hours per week only earns $290 per week in gross wages—less than half of the $600 weekly increase. On average, a worker collecting UI and the $600 is making between $20.38 per hour in Mississippi to $28.75 in Massachusetts (the national average is $24.68). To meet this amount, employers that need new low-wage workers will need to pay more until the higher benefit levels expire at the end of July.
This need will vary geographically, with employers in low-cost areas of the country likely to be disproportionately affected. Although this may create a temporary drag on recovery in some places, the UI increase has been critical for achieving the primary goal of keeping nonessential workers at home to contain the pandemic.
For the millions of workers who are both essential and paid low wages, the high benefits may feel like an economic injustice. The best policy solution for that is not to withdraw relief from unemployed and quarantined workers, but rather to pay essential workers more. We could start with mandated hazard pay and consider longer-term solutions such as raising the minimum wage or making medical transport a reimbursable expense for Medicaid and Medicare.
Having full wage replacement is a legitimate policy goal in a pandemic
In a pandemic, the primary goal is to save lives by preventing the disease’s spread. Taking bold actions such as social distancing and lockdown orders require equally bold measures to stabilize the economy during that time—such as “unemployment insurance on steroids.” UI recipients are recycling the extra dollars into the economy as grocery and food purchases, rent and mortgage payments, consumer goods, and health care payments. This spending can stem a negative chain reaction throughout the economy, reducing the need for even more government intervention elsewhere. The country must pursue economic and safety goals in tandem to achieve a successful recovery; to frame them in opposition to each other presents a false dichotomy. Thus, the goal of expanded UI should be replacing a worker’s full wages.
On average, UI replaces 41% of previous earnings. The average hourly wage in the U.S. is $25.72. This means the average UI weekly benefit amount plus the additional $600 will get the average worker with a 40-hour work week to full wage replacement.
Additionally, state data systems cannot handle a more nuanced solution than a flat $600 increase. Policymakers were familiar enough with states’ administrative capacity to know that changing the formulas for calculating benefit levels so that every worker reached 100% wage replacement was impractical for states to administer the relief quickly enough. There is a high degree of variation across states in how benefits are calculated, and complex reprogramming would be required for states with antiquated UI data systems.
Moreover, even an additional $600 per week does not achieve full wage replacement in some high-cost cities. In 10 U.S. metropolitan regions, including the viral hotspot of New York City, the disconnect between wages and the cost of living is so extreme that even an extra $600 per week from PUA does not get a median-wage worker to full wage replacement. These 10 regions are home to more than 46 million people, or 14% of the U.S. population.
We need more bold solutions to reopen safely and promote an inclusive recovery
However flawed “unemployment insurance on steroids” was in terms of a speedy execution, expanded UI benefits are a key ingredient of a multipronged pandemic policy response. These benefits are providing critical relief to displaced workers and are helping to stabilize macro-level demand to protect other critical economic sectors from collapse.
The real problem is that the coronavirus pandemic is throwing gasoline on inequality, which is an existential threat to our unity as a country. We are in dire need of more bold policy solutions to promote a successful, equitable, and unified recovery. States and local areas don’t have the fiscal resources to do this alone. Governors need to take concrete steps to address barriers to reopening, including:
- Lack of child care. Governors will need to coordinate business reopening with the opening of schools and other child care facilities. The lack of safe and affordable child care will negatively affect child care providers, businesses, and the recovery effort as a whole.
- Inadequate or unclear safety regulations. Employers have a legal obligation to provide a healthy and safe workplace, which will require an elevated level of prevention in a pandemic. Governors must communicate and enforce health and safety expectations with extreme clarity, because having lax or unclear standards may jeopardize lives and further disrupt economic activity if additional outbreaks occur. Unsafe work environments may also deter workers from returning to work even if they can’t continue collecting UI benefits, simply because they perceive that it is not worth risking their life for a job.
- Lack of business capacity to adapt to higher health and safety standards. Governors should consider ways of providing additional financial and technical support to businesses that legitimately do not have the capacity to comply with pandemic-related health and safety standards.
- An unprepared economic security and career advancement safety net. The end of the $600 increase in July will be a dramatic shock to workers—and possibly consumer demand nationally—when millions of people lose that income all at once. Related programs such as food and re-employment assistance will likely see tremendous spikes in demand, and those programs are not ready to handle these volumes.
- Under-use of work share. Additional steps to publicize and enhance work share as a preferred strategy for employers may help employers rehire workers more easily and relieve stress on state UI systems. Congress and states should also consider ways to make work share more user-friendly for employers and waive minimum hours requirements during the pandemic recovery period. Washington, Oregon, and Iowa offer promising case studies.
- Confusion and misinterpretation. States can send mailings to all residents to help inform them of their rights and options, such as decisionmaking guides for employers and call center information for relief programs. States can also communicate more about resources available for reporting malfeasance and noncompliance related to UI and health and safety regulations.
As the U.S. begins to reopen, narratives that portray workers and employers only in direct conflict with each other erase the interdependency between both in generating economic vitality, innovation, and community well-being. Workers are not just a cost factor to minimize; they are an investment, a source of value, and, at the end of the day, workers are our family members and neighbors. “Unemployment insurance on steroids”—while imperfect—is the type of bold solution necessary to achieve an equitable national recovery.