Some lawmakers realized that sending an extra $600 per week to everyone who receives unemployment benefits would cause problems. That’s why they tried to cap benefits at 100% of each workers’ wages.
They didn’t get the cap. But they were right.
Heritage Foundation economist Drew Gonshorowski and I have now modeled the impact of the “bonus” payment provisions and concluded that it will be even more damaging than those lawmakers imagined.
Over the last four weeks, about 26 million people have filed for unemployment insurance, bringing the unemployment rate close to 20%. We estimate that, at the peak of unemployment in May, the extra $600 per week could be responsible for 13.9 million of the total unemployment claims. With more workers on the sidelines and for longer periods of time, this will reduce the nation’s output by up to $1.49 trillion between May and September.
In normal times, unemployment typically provides about 50% of previous earnings. But these are not normal times. It makes sense to temporarily increase benefits because this is a temporary health crisis in which tens of millions of workers have lost their jobs through no fault of their own.