Now We’ll Know What the Recession Feels Like

Congress is severing a lifeline for millions of Americans.

A volunteer prepares food to b​e delivered during a food dist​ribution for casino w​orkers laid off due to the coronavirus pan​demic at the Harbor Square Mal​l in Egg Harbor Township, New Jesery.
A volunteer prepares food to b​e delivered during a food dist​ribution for casino w​orkers laid off due to the coronavirus pan​demic at the Harbor Square Mal​l in Egg Harbor Township, New Jersey. (Bryan Anselm / Redux)

About the author: Annie Lowrey is a staff writer at The Atlantic.

This week, Congress will decimate the economy, in an unfortunately literal sense: It will cut unemployment-insurance payments to more than 25 million people, more than one in 10 American adults. When it does, the coronavirus recession, already historic in its severity, will become far, far worse.

The CARES Act, the coronavirus-relief legislation, included a huge expansion of the unemployment-insurance (UI) program, to include gig workers and freelancers not normally eligible for benefits. It also added a $600-a-week bonus payment to state UI payouts, which generally range from $100 to $400 a week. For four months, these $600-a-week bonus payments have prevented the country’s jobs catastrophe from becoming a catastrophe for family budgets too. They have helped laid-off workers pay their rent, put groceries on the table, and keep the lights on.

During normal economic times, such large UI payments might discourage workers from looking for a gig and accepting a job; due to the CARES Act, most unemployed people have actually been making more from UI than they were making at work. But “the concern about the disincentive effect has been massively overblown,” argues Heidi Shierholz, the former chief economist at the Labor Department. “First, it ignores the realities of the labor market for working people, who will be unlikely to turn down a permanent job—particularly in a time of extended high unemployment—for a temporary boost in benefits. Further, there are 14 million more unemployed workers than job openings, meaning millions will remain jobless no matter what they do. Cutting off the $600 cannot incentivize people to get jobs that aren’t there.”

Rather, the $600-a-week payments were a lifeline. Research by the JPMorgan Chase Institute, a think tank housed in the mega-bank, found that the recession and the pandemic cut the spending of employed workers by roughly 10 percent. That makes sense: Many workers had their hours cut, many families spent less as they sheltered in place and worked from home, and many cut back due to fear and uncertainty about the economy. But unemployed workers actually spent a little more than they did before the pandemic hit, due to the additional UI money. The think tank concluded that “expanded unemployment benefits are acting both as a source of stability for unemployed individuals and also as a form of stimulus to the overall economy.”

Congress is now severing that lifeline. The $600-a-week bump functionally expires on Saturday. Even if Congress were to pass an extension now, state UI systems would not be able to program the benefits back in quickly enough to avoid a lapse for millions of recipients. Nor do Republicans want to extend the benefits in full. Concerned about the economy not restarting (a result of the virus, not UI), concerned about the $70-billion-a-month cost of the payments (chump change, given that the economy is collapsing), concerned about disincentivizing work (which, again, does not appear to be happening), Republicans are proposing to cut the payments to just $100 or $200 a week through December, or perhaps to cut them to $300 a week and then extend them only two more months.

A small bump is better than nothing, but the reduction will still hurt families struggling to navigate the dangers of an incurable virus, the disastrous loss of child care and in-person education, and the worst job market in 80 years. Reopening is not leading to a boomerang in economic activity—indeed, the number of people employed fell from mid-June to mid-July, the Census Bureau reported this week. Jobless workers can’t just go out there and make some money. Now they won’t be able to go out there and spend money either.

At a macroeconomic level, this means that Congress is risking turning a stalled recovery into a double-dip recession. Workers on UI will see their income drop. With no work and no UI, they will spend less, hurting local businesses. Those businesses will purchase less from suppliers, cut their investments, and perhaps lay off employees. This vicious cycle will repeat millions of times, in millions of places across the country. The United States’ economic problems will get worse, not better.

Indeed, Congress slashing the benefit from $600 a week to zero could cost the economy 1.1 million jobs by the end of the year, depressing GDP growth by more than 1 percent and increasing the unemployment rate by 0.7 percent, Mark Zandi of Moody’s Analytics told me. “The economy has already gone sideways since early June, as the intensifying pandemic is doing serious damage,” he said. “Employment may decline in July, even with the current amount of fiscal support. If that support ends altogether, then the job losses will be large in coming months, and unemployment will remain in double-digits until well after the pandemic is over.”

Congress is not electing to get the economy back on its feet, encouraging workers to go back to work, or saving the country from some unaffordable debt. It is choosing to slow down the recovery, destroy jobs, and make permanent the economic damage from the virus.

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