When Congress passed its $2.2 trillion stimulus bill, one of the provisions meant to help laid-off workers has turned into an incentive not to return to work.

The CARES Act provided an additional $600 in unemployment benefits for up to four months to every unemployed worker on top of state benefits they currently qualify for. 

It was meant to be an added burst of relief due to the sudden layoffs because of government-mandated shelter-in-place orders and closures.

The problem that employers are now running into is that some of their workers do not want to come back to work because they are earning more on unemployment.

For example, a 37-year-old restaurant worker in San Diego now gets $250 more a week than if he was working at his job at the Melting Pot.

Paycheck Protection Program (PPP) loans had been a saving grace for small businesses. These low-interest loans backed by the federal government can be converted to grants if most of the funds are used to retain or rehire employees by June 30. However, as employers call their workers with the good news about reopening and bringing them back to work, they are learning firsthand that their employees would rather stay at home and collect unemployment benefits.

The co-owner of a California inn said that so far two workers out of his 24-person staff told him they were quitting, “They said, ‘Why do I need to take the risk if I can make more sitting at home?’”

A Washington state spa owner with nearly three dozen workers across two locations was on the receiving end of a backlash from her employees after she received PPP loans to pay them and bring them back. 

The massage therapists, hairstylists, and estheticians on her payroll can earn from the $13.50 per hour minimum wage to up to $60 an hour. For those on the lower end of the payscale, the added $600 boosted their unemployment benefits beyond their typical check. 

“It’s a windfall they see coming. In their mind, I took it away.”
“I couldn’t believe it,” she added. “On what planet am I competing with unemployment?”

This is what happens when stimulus aid fails to be targeted, temporary, or flexible.

The $600 added benefit was meant to bring the replacement wage for the average unemployed worker to 100 percent of their regular wages rather than the usual 50 percent. As a result, some lower-wage workers ended up ahead.

In a state like Alabama which has a maximum unemployment benefit of $275, the additional $600 increases that maximum to $875, which would be an income increase to anyone who was formerly making less than $45,000 a year.

Add to this, the $1,200+ stimulus checks for Americans making under $75,000 a year with an extra $500 per dependent child and we can see how some households ended up in a better position than if they had not lost their jobs.

At least this $600 benefit is set to expire at the end of June, but Democratic lawmakers have already introduced legislation to extend it. Such a move would make the desire to remain at home a strong influence.

The saving grace to keep unemployment from becoming an indefinite dependency trap is that turning down a job offer (i.e. your boss calls you back to work) disqualifies you for unemployment benefits.

As states lift shelter-in-place orders and businesses try to resume operations, it will be difficult to do so without workers and that could delay their ability to get back online. With double-digit unemployment rates, we should be not be creating disincentives to work. 

Over 35 million American workers are not working today because of coronavirus-mandated work closures. Blue-collar and white-collar workers alike have seen their jobs disappear with the cancellations of conference and events; closures of non-essential businesses including stores, bars, and restaurants; and cancellations of contracts for business.

Targeting aid to those workers for a limited time was reasonable, but we cannot ignore how it triggered some unintended consequences.