Tuesday, August 11, 2020

Where Did They Come Up With $600?

Back in March, when Congress passed the CARES act - the creation of (allegedly) $2 trillion out of thin air - somebody, somehow, came up with the number $600 per week in extra unemployment insurance for victims of the COVID shutdowns.  That benefit expired on July 31st and since congress is incapable of working on anything that might not make their party look better than the other guys, that benefit is gone.  The president, as everyone must know, signed some executive orders to re-purpose other federal funds but couldn't come up with more than $400 - and $100 of that comes from telling the broke states with low tax revenue to pay it. 

Since the topic was in frequent discussion, I started wondering where $600 came from.  It seemed like an arbitrary figure; I mean why not $500?  Why not $750 or any equally arbitrary-sounding number? 

Like many people, during the financial turmoil of the end of the 70s and early 80s, I was unemployed for a while and received unemployment.  At that time, there were no Federal benefits, it was entirely state run, and the benefit was set at a percentage of your pay while working.  I seem to recall it was 50%, but that's hazy.  I only got one check and had to wait 6 weeks to get it. 

Then, last week, I heard a number that added detail to something I'd heard in the preceding months. 

Before the extra $600 expired, more than two-thirds of Americans received more in unemployment benefits than they did from their former jobs. [NOTE - “more than two-thirds” was 68% - SiG]

Additionally, one in every five (20%) eligible workers would receive benefits that were double their lost earnings.  That's awkward.  We know the intention was that since this isn't normal unemployment due to typical circumstances, the Fed.gov, in its infinite largess, would try to remove the gap between what the people made on unemployment and what they were earning.  They just overshot.  By a lot.  Another MarketWatch article included a short note on where $600 came from.   

... according to a paper titled “The Effect of Fiscal Stimulus: Evidence from COVID-19” circulated by the National Bureau of Economic Research on Monday.

If federal unemployment benefits were $200 a week, the researchers found that the replacement rate would decline by 44% and spending would fall by 28%. At $400 a week, the replacement rate would fall by 29% and spending would fall by 12%.

So the National Bureau of Economic Research read tea leaves or did a seance and decided that the more money you give unemployed people, the more they spend.  Genius!  Who would have ever thought of that?  I mean besides anyone who can fog a mirror.  

Let's stop for a minute.  Let me throw some numbers around.  Let's assume the person receiving the unemployment was working 30 hours a week at the Federal minimum wage, $7.25 (leaving out paradises like Seattle that have enacted higher minimum wage laws).  They were grossing $217.50/week and taking home roughly 80% of that or $174.  Let's assume the state unemployment was 50% of their regular pay, or $87/week.  Now the Feds come along and give them $600/week on top of that.  That $687 total is almost 4 times their previous take home pay.  Do you think that might not make looking for a job their biggest priority in life?  Just sayin'.  

Clearly this depends on what they were making and the more they were making, the less the supplemental Federal unemployment pay affects them.  Someone working 40 hours/week at $15/hr, for example, would be taking home closer to $450/wk at work and $225 if their unemployment is 50%.  $600 in Federal unemployment benefits still puts them far beyond what they were taking home from work.  My examples might seem too simplistic, and maybe they are, but MarketWatch included this little fact:

In every state, the median earnings-replacement rate exceeded lost wages, ranging from 129% in Maryland to 177% in New Mexico.

To me, $600 doesn't make any sense.  $400 doesn't make sense.  If we were (as often stated by the likes of AOC and Bernie) the Richest Nation on Earth, it might be no big deal.  In actuality, we're the Most Broke Nation on Earth; the Most Indebted Nation on Earth, and we're making every single aspect of our long term financial health worse by doing this. 

What makes sense?  No flat dollar amount like those makes sense for the entire country.  If nothing else, the picture differs from state to state and even within a state where minimum wage laws change.  What makes sense to me is to restore their unemployment to 100% of their take home from work.  But that would require something other than just running the printer or automatically depositing checks in people's accounts.  It would take work on the Fed.gov's part. Which would cause a slowdown and inevitably end up in laughably wrong results

 A Florida handout of unemployment applications in April. (Photo by Joe Raedle/Getty Images)


  1. I was forced into retirement 5 years ago when i made a 6 figure salary. I am driving a school bus to make ends meet now. The unemployment payments are twice what I can earn and I am still driving the bus.

  2. Remember $15 as the living wage?

    $15 * 40 = $600

  3. All of you guys numbers make sense on various levels. Let's not forget that the primary reason for such largess was to make the Demonrat party look good in the voters eye. That should tell you all you need to know as to why the numbers are such as they are.