Should unemployment benefits be higher than the person's normal income?
- The unemployment rate is calculated by taking the number of unemployed citizens divided by the total available workers in the civilian labor force. The federal Bureau of Labor Statistics has a more specific definition for unemployment: “people who don't have a job, have actively looked for work in the past four weeks, and currently are available for work.”
- In August 14, 1935, President Roosevelt signed the Social Security bill which introduced the Unemployment Insurance Program (UI) still in effect today. This followed after the stock market crash of 1929 that led to the Great Depression, the biggest economic downturn the US ever faced.
- President Trump declared a national emergency on March 13, 2020, and also announced national guidance that states dedicate “15 days to slow the spread” on March 16. By April, 23 million workers were let go in response to the lock down.
- Under the Trump Administration, US unemployment rates plummeted, being ≤3% before the pandemic recession began February/March 2020. In 2019, the unemployment rate was ≤5% for all Americans.
As the full extent of the financial fallout from the pandemic has yet to be reached, now is not the time to be stingy with benefits. Instead, the government should take 2020’s unique circumstances into account and give a far more robust response to this economic and healthcare emergency, even if that means unemployment compensation is higher than what a person would typically earn.
For starters, many regular incomes already do not meet living wage thresholds, rendering most of those earners below the poverty line even if all adults in said households are working full time. Though raising the current minimum wage would undoubtedly help workers, it does little to assist Americans who are presently out of a job. Providing higher unemployment compensation in the meantime could provide badly needed support while actually lowering the poverty rate.
The loss of a job can also leave many families with only a slim or nonexistent cushion for emergencies. Even before the pandemic, nearly half of American families couldn’t cover the cost of a $2,000 unexpected expense. That reality is compounded by things like long-term side effects of contracting COVID-19 or leaving the workplace to care for socially distanced or quarantined family members, such as children relying on distance learning. This, in turn, leads to even more extended periods of unemployment as workers recover from illness or schools remain closed, raising the specter of a financial disaster even higher.
An unemployment benefit that matches or supersedes lost income would help alleviate some of that danger while also offering enough breathing space to allow someone to keep looking for work if they need it.
Unemployment insurance should not be higher than a person’s normal income; it was created to be a temporary measure to cover a portion of a person’s income, ensuring they could afford essentials like food and utilities while looking for new work. When unemployment insurance is higher than a person’s normal income, there’s not much of an incentive to work. It may also disincentivize people who are working, encouraging them to quit their jobs and instead file for unemployment. In times of economic downturn, this can prolong stagnation, helping ensure unemployment remains high and salaries remain low.
For companies already struggling with paying out benefits, the inability to find new employees willing to work for less than they can make on unemployment may mean they go out of business, which throws many more citizens off private payroll and onto government dependence. This leads to fewer jobs available when unemployment insurance runs out, potentially worsening people’s economic situation and contributing to longer-term economic stagnation.
Unemployment insurance is also paid primarily by taxes on employers. This takes money out of their pockets, money that otherwise might be available to pay employees and reinvest in businesses bolstering the economy, strengthening it and enabling the creation of more jobs. Unemployment insurance is also a joint federal-state program. Boosts to unemployment insurance from the federal government create more public spending. And, therefore, more public debt. Greater debt can incentivize politicians to raise taxes on individuals and businesses, further reducing the amount of money they have to pay their employees and create jobs by investing in their companies.