HEROES Act: What's the unemployment impact of that $600/week?
Background
Individuals who lost their jobs due to the COVID-19 pandemic became eligible for standard unemployment benefits from their States.
The 2020 CARES Act authorized “Federal Pandemic Unemployment Compensation” (FPUC) payments to such recipients of State unemployment insurance payments. This is a flat $600 per week per individual on top of State-provided unemployment benefits, which continues through July 31, 2020.
The HEROES Act, passed by the House and now before the Senate, would (among other things) extend FPUC payments through January 31, 2021 and would extend them beyond that date for individuals who had not yet exhausted their normal unemployment benefits (until the date they are exhausted). It would also disregard FPUC payments as income when means testing other federal assistance.
We consider the arguments of four experts or groups of experts:
- Paul Krugman, Professor of Economics at Princeton and Nobel Laureate. His reasoning is extracted from the NY Times op-ed, “The Next Disaster Is Just a Few Days Away”, July 16, 2020: https://www.nytimes.com/2020/07/16/opinion/coronavirus-economy-unemployment.html
- Jose Maria Barrero, Nick Bloom, and Steven J. Davis. Barrero is Assistant Professor of Finance at Instituto Tecnológico Autónomo de México (ITAM) Business School. Bloom is Professor of Economics at Stanford Graduate School of Business. Davis is Professor of Economics, University of Chicago Booth School of Business. Their reasoning is extracted from “COVID-19 Is Also a Reallocation Shock”, Working Paper no. 2020-59, Becker Friedman Institute: https://bfi.uchicago.edu/working-paper/covid-19-is-also-a-reallocation-shock/
- Janet Yellen and Ben Bernanke, former chairs of the Federal Reserve. Their reasoning is extracted from “Former Fed Chairs Bernanke and Yellen testified on COVID-19 and response to economic crisis”, July 17, 2020, Brookings Institution: https://www.brookings.edu/blog/up-front/2020/07/17/former-fed-chairs-bernanke-and-yellen-testified-on-covid-19-and-response-to-economic-crisis/ and https://www.c-span.org/video/?473950-1/ben-bernanke-janet-yellen-testify-covid-19-economic-inequities
- Congressional Budget Office. Reasoning extracted from Re: Economic Effects of Additional Unemployment Benefits of $600 per Week, a letter to Charles Grassley, Chairman, Senate Finance Committee: https://www.cbo.gov/publication/56387
Main Arguments
Those above who advocate for extending FPUC without modification make three arguments:
- The alternative will be misery for millions of unemployed workers, particularly women and minorities.
- Extending FPUC will increase economic output.
- Extending FPUC will not slow the recovery of employment (reduction in unemployment).
Claims #2 and #3 are debated in the sources above. (#1 was not. Many economists shy away from judging the difference in misery if a person’s income decreases 50%, stays the same, or increases 30%.)
We focus on claim #3 because it reveals a central point of disagreement which all four sources covered.
