The United States is not known for its generosity to the unemployed. But the coronavirus crisis has transformed our system for compensating jobless workers. As tens of millions of workers suddenly became unemployed, Congress passed an expansive relief package with an unprecedented $600-per-week supplement for jobless workers. The goal was to replace their wages so they could survive the economic lockdown.
As a result, though, many people may now be eligible for substantially more money while unemployed than they made while they were working. A new analysis by Peter Ganong, Pascal Noel and Joseph Vavra, economists at the University of Chicago.
Ganong is a personal friend of the author.
Using government data from 2019 to estimate that 68 percent of unemployed workers who can receive benefits are eligible for payments that are greater than their lost earnings. They also found that the estimated median replacement rate — the share of a worker’s original weekly salary that is being replaced by unemployment benefits — is 134 percent, or more than one-third above their original wage. A substantial minority of those workers, particularly in low-wage professions like food service and janitorial work, may end up receiving more than 150 percent of their previous weekly salary.
These estimates do not include health insurance, retirement contributions or other non-wage compensation.
The research underscores one of the central — and most politically explosive — tensions of our economic crisis: What’s the best way for our battered unemployment insurance system to keep jobless workers afloat during a historic downturn with no end in sight?
The idea behind a $600 payment was simple: In 2019, the national average unemployment payment was $370 per week and the national average salary for unemployment recipients was $970 per week.
Per the Department of Labor, which based its calculation on the hourly wage of the claimant’s usual job, then normalized it to a 40-hour work week.
The additional $600 per week is meant to make up the difference, providing enough money on a weekly basis to fully replace the average unemployment recipient’s salary. Other analyses of estimated average wages and unemployment benefits have already shown, though, that replacement rates likely vary quite a bit by state.
But looking at average wages doesn’t tell the whole story, because the country’s significant income inequality means that more workers fall into lower-wage categories. To address that problem, the new analysis simulates benefits for the median — rather than the mean — unemployment-eligible worker, drawing on Census Bureau labor supply data.<a data-footnote-content=”
To arrive at these estimates, the researchers used data from the 2019 Current Population Survey Annual Social and Economic Supplement, which asks about labor supply in calendar year 2018. The core analysis was restricted to 444 workers in the sample who are U.S. citizens, have hourly earnings above the federal minimum wage, and have sufficient quarterly earnings history to be eligible for UI in the state where they live, though to get the median replacement rate by occupation and state the researchers supplemented that group with the wider pool of employed people in the survey. The researchers constructed estimates of unemployment benefits received according to a Department of Labor summary from January 2020, using only the primary listed method for qualifying in the document and the lower benefit amount in places where there were ranges. The benefits amount was calculated for a single unemployed person with no dependents.
This data comes with a few important caveats. One is that because government data lags, the sample of workers the researchers drew on for the analysis does not reflect the much larger pool of people who are unemployed right now. If anything, Ganong told me, that means the researchers’ estimates may understate how many unemployed workers will be eligible to receive more than their original salary during the current crisis, since the effects of the economic shutdown have disproportionately hit lower-income workers.
The analysis focuses on workers who are eligible for traditional unemployment insurance; it doesn’t apply to self-employed people who are covered under a new, pandemic-specific benefit system.
Plus, the fact that workers are eligible for unemployment insurance doesn’t mean they have the benefits yet. Delays in applying for and receiving unemployment payments have been widely reported across the country, and some workers are still struggling to get through their state’s system.
The analysis illustrates how something that seems like a simple proposition — replacing jobless workers’ salaries while a public health threat persists — is not something our unemployment insurance system was built to do quickly or easily. Most of the experts I spoke with agreed that back in March, [ … ]
The post Many Americans Are Getting More Money From Unemployment Than They Were From Their Jobs appeared first on NewsCetera.
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