When millions of Americans began losing their jobs in March, the federal government stepped in with a life preserver: $600 a week in extra unemployment benefits to allow workers to pay rent and buy groceries, and to cushion the economy.
With economic conditions again deteriorating, that life preserver will disappear within days if Congress doesn’t act to extend it. That could prompt a wave of evictions and inflict more financial harm on millions of Americans while further damaging the economy.
Even the threat of a lapse in benefits could prove harmful, economists warn, by forcing households to make precautionary spending cuts.
The benefits program, Federal Pandemic Unemployment Compensation, expires at the end of July. But because of a quirk in the calendar, workers in most states won’t qualify for the payments after this week. Most will be left with regular unemployment benefits, which total only a few hundred dollars a week in many states.
That means that more than 20 million Americans could soon see their weekly income fall by half or more at a time when the unemployment rate remains higher than in any period since World War II.
Economists warn that it isn’t just individual recipients who will suffer if the benefits are cut. The federal payments are injecting billions of dollars into the economy each week, money that flows to landlords, grocery stores, retailers and countless other businesses. Ernie Tedeschi, a former Treasury Department official and an economist at Evercore ISI Research, has estimated that if the payments ceased, the U.S. gross domestic product would be 2 percent smaller at the end of 2020 and there would be 1.7 million fewer jobs nationwide.
“These unemployment benefit checks are really doing a large job in propping up spending by these unemployed households,” said Joseph Vavra, a University of Chicago economist who has been studying the impact of the benefits. If they expire, he said, “there’s a good chance that what is now an unemployment problem becomes a foreclosure crisis and eviction crisis.”
Congress returned from recess this week to consider a new relief package, which could include at least a partial extension of the extra unemployment benefits. Senate Republicans and the White House are considering a roughly $1 trillion package that would retain the program but scale it back. Democrats are pressing to continue paying the full $600 a week.
But Congress seems unlikely to act before benefits lapse. And because of the antiquated computer systems in many state unemployment offices, which do the processing, it could take weeks to restart payments. That means that millions are likely to see their income drop at least temporarily.
For people depending on the checks, that uncertainty is frustrating.
“I have no idea why Congress would wait until a few days before the checks are going to run out,” said Jacob Perlman, a benefits recipient in Chicago. “This should have been done a month ago.”
Mr. Perlman, 26, earned $12 an hour as a housekeeper at a fitness club, making him one of the millions of Americans earning more on unemployment than they had on the job. But he is eager to return to work.
“The jobs simply are not there right now,” he said.
Mr. Perlman’s regular benefits from the state of Illinois total $159 a week, barely enough to cover his $500 share of the monthly rent, let alone food or other expenses. So he is already trying to save as much as possible.
Decisions like Mr. Perlman’s to curtail spending even before the benefits expire, multiplied across millions of households, are a sort of uncertainty tax on the broader economy, damping the stimulative effect of the payments.
“There are people who are on the precipice of financial disaster here,” said David Wilcox, a former Federal Reserve official who is an economist at the Peterson Institute for International Economics. “We may think that the odds are that Congress will come to a reasonable conclusion. But for a person who is on the precipice of financial disaster, it’s very low comfort to be told, ‘You know, I think there’s a 70 percent chance that this is going to work out fine.’”
The risk is particularly acute for Black and Latino workers, who have been disproportionately affected by job losses and are less likely to have savings or other assets to fall back on. A recent working paper from researchers at the University of Chicago and the JPMorgan Chase Institute found that Black and Latino households cut spending by far more than white households when their income drops.
“When 30 percent of your population has no wealth, this has real implications,” said William E. Spriggs, a Howard University professor and the chief economist for the A.F.L.-C.I.O. “There isn’t a piggy bank. This is it. So when you cut their benefits, their drop in consumption is going to be huge.”
The extra unemployment payments were part of a multitrillion-dollar federal response to the pandemic’s economic devastation, according to Voice News. Congress expanded eligibility for unemployment benefits and food stamps, sent $1,200 checks to most households and offered forgivable loans to millions of small businesses.
Together, those programs did much to offset the damage: Average personal income rose in April, the worst month of the crisis to date, and consumer spending rebounded quickly once federal dollars started flowing into the economy. Mortgage delinquencies, credit card defaults and other signs of financial stress rose by less than many forecasters initially feared.
When Congress created the various programs, it still seemed possible that the pandemic would have begun to ebb by summer and that the economy would no longer need as much federal help.
Instead, after falling steadily in May and early June, virus cases are rising in much of the country, and states are reimposing business restrictions. Real-time measures suggest that the economic recovery that began in May has begun to lose momentum, and some economists expect the unemployment rate to start climbing again.
The threat of an economic stall has led some Republicans in Washington to embrace more aggressive federal action than they were considering a few weeks ago. Larry Kudlow, a top economic adviser to President Trump and a critic of the $600 payments, said this week that there was “no way” Republicans would allow the benefits to expire entirely. But the congressional outcome remains unclear.
Some economists, particularly on the right, say there are good reasons to wind down the payments as the economy improves. But even economists who have been critical of the extra benefits say it would be a mistake to cut them off entirely.
“That’s a lot of income to just withdraw from the economy really suddenly,” said Michael R. Strain, an economist at the conservative American Enterprise Institute. “Right now there’s no question that the positive economic effects of those payments are outweighing the negative economic effects.”
Mr. Strain and many other economists would like to see the benefits linked to economic conditions, ideally at the state level. That would allow payments to shrink as local economies improve, while eliminating the uncertainty that comes with setting a fixed end date and then waiting to see if Congress extends it.
Progressive economists also favor linking benefits to economic conditions. But they dismiss concerns about discouraging work when there are millions more unemployed workers than available jobs. And they argue that cutting benefits now would set off economic ripples that would lead to more job losses.
“When they can’t pay their rent, now it’s the landlord whose business is hurting,” said Sharon Parrott, a senior vice president at the progressive Center on Budget and Policy Priorities. “Those are all dollars that are not circulating through the economy.”
Cutting off benefits could also increase the spread of the virus by forcing people to take jobs in which they might be exposed to it or expose others.
“When that $600 goes away, people who live week to week, paycheck to paycheck, they’re suddenly going to be unable to pay basic expenses and will be desperate for work,” said Michele Evermore, a senior policy analyst for the National Employment Law Project.
For now, people like Mr. Perlman, who lost his job at a fitness club, are left to wonder what comes next.
“I just want security,” he said. “That’s what I want. I’m not looking to profit off this. If there was a job out there, I would take it.”