Expanded unemployment payments included under the $2.2 trillion pandemic relief measure passed by Congress in March might be hindering U.S. economic recovery, according to Goldman Sachs.
“While the $600/week benefit top-up has been instrumental in stabilizing U.S. household income so far, it has also pushed the replacement ratio—benefits as a share of prior income—above 100 percent for many low-paid workers. If the measure is extended beyond its current July 31 end date, this will reduce the incentive to seek work as the economy opens up,” wrote Goldman Sachs Chief economist Jan Hatzius in a note to investors, according to Yahoo Finance.
The CARES Act included the $600 per week provision in an attempt to offset economic losses suffered during the CCP (Chinese Communist Party) virus pandemic. But some Republicans and economists have expressed fears that the extra unemployment benefits might disincentivize people from getting a job after being laid off, while top leaders, including Senate Majority Leader Mitch McConnell (R-Ky.) have promised to remove the provision in future aid packages.
“If it expires, income will fall sharply. In the end, we think a partial extension at $300/week will limit both the incentive effects and the income hit, without fully resolving either,” Hatzius wrote.
A study from the University of Chicago showed that about 68 percent of unemployed workers are taking home more money per week while remaining on unemployment insurance instead of working.
The university’s study noted that the benefit was a “substantial income expansion” for lower-income workers. It, however, noted that some workers also lost health insurance when they were laid off.
The Department of Labor reported this week that some 40 million Americans have filed for unemployment insurance in the past two months as businesses shuttered and governors initiated stay-at-home measures in an attempt to prevent the spread of COVID-19.
“We think these filings in the 10 weeks since the mid-March coronavirus pandemic lockdown tells the true story of the wreckage out there in the country and the enormous long-term damage done to the economy,” said Chris Rupkey, chief economist at Mitsubishi UFJ Financial Group in New York, of the unemployment claims.
Reuters contributed to this report.