Alix Gould-Werth is director of family economic security policy at the Washington Center for Equitable Growth
Casey Miller’s job was his passion. After hours of study and years of training, he secured a bartender position in Ann Arbor, designing and serving high-end cocktails. The service industry is notorious for its grueling hours and low pay—Casey made about $700 a week, including tips. When the coronavirus pandemic hit, he feared contracting COVID-19 at work. Then, the bar closed, and his worries shifted to his economic future.
When claims flooded in, the internet servers hosting Michigan’s Unemployment Insurance system crashed. But Casey was persistent. He filed his claim at 3 a.m., when web traffic was low. Now, each week, he receives $360 in regular benefits and a $600 pandemic-specific top-off. Though some wring their hands over unemployment checks that they see as oversized, providing people like Casey and so many others in similar circumstances with enough money to meet their basic needs is an effective solution to an unprecedented crisis. For this reason, the $600 payments should continue beyond their current July 31, 2020 expiration date.
The $600 policy solution was enacted in March, when the toll of the coronavirus crisis first became clear. Some policymakers wished that—in this unusual context—each worker could take home the exact amount they received while working. But the same systems that crashed under increased claims could not implement a new, individually tailored formula on short notice. Instead, the simple $600 increase lets average workers cash unemployment checks roughly equal to their old paychecks. The lowest earners bring home more than they made on the job, and the highest earners bring home less
As Casey’s story shows, this is a smart way to target benefits. What did Casey do when he received an unemployment check that was larger than his paycheck? He spent it. While working, he had just been able to pay rent and save $5,000 for retirement annually. To make ends meet, he needed every penny of his unemployment check. When it arrived, he paid his rent in full. With the income bump, he had groceries delivered and stopped spending extra time in the grocery store, comparing prices for the best deal and potentially exposing himself to COVID-19.
Research shows that while high-earning workers save benefit dollars, low-earning workers spend them out of financial necessity. Many low earners—particularly workers of color who face generations of labor market discrimination—lack inherited wealth and well-resourced social ties. Low wages, paired with broader economic deprivation, make both saving and buying unnecessary goods difficult. As a result, low-earning workers spend their benefits to keep prescriptions filled, food on the table, and a roof overhead.
The extra $600 creates a virtuous cycle. Directing cash to those who need it most channels dollars to businesses, which employ more workers, who, in turn, have income to spend. This stabilizes the labor market now, and when working conditions are safe and stimulating the economy becomes an urgent policy goal, this circulation of cash will be crucial to our economic recovery.
The recent release of the May Employment Situation Report shocked many, showing an uptick in employment levels. Immediately, some policymakers seized on the better-than-expected figures to re-up their calls to let the $600 add-on expire. But thousands of new cases of coronavirus are reported daily, many businesses are unable to operate safely, and the number of unemployed workers is far greater than the number of job openings. While Casey's bar has re-opened, Casey is not back at work. July 31 is rapidly approaching, and if the $600 add-on lapses, Casey’s benefits will revert to $360 per week. If he remains unemployed, he will still spend his full check, but he won’t be able to meet his basic needs—and the amount of money he channels back into the economy will be far less.
For months now, some have argued that it is dangerous to provide high benefits to low earners. They say people will turn down jobs that pay less than their unemployment check offers. In reality, people who turn down suitable work lose their benefits, and, as the May numbers show, people are returning to work regardless of the $600 bonus. These arguments also miss the larger point: The current economic crisis is off-the-charts grim. If we reduce the amount of money circulating in the economy, there won’t be jobs for people like Casey to return to.
Instead, using thoughtfully constructed rules to phase down additional benefits as the health crisis subsides and employment increases will keep the $600 payments flowing when the economy needs it most and allow workers time to search for a job that is a good match for their skills, their health, and their families. Lowering the amount or cutting it off too early spells disaster for our families and our economy.