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A Temporary Safety Net, Not a Pay Raise

Lots of competing ideas right now about unemployment benefits.  I realize this is a lengthy post, but if you just want the high-level points, look for the blue diamonds 🔹 below.

🔹 One of the recent coronavirus bills passed by Congress, the CARES Act, provided an additional $600 per week in unemployment compensation. That’s in addition to what someone was already eligible to receive.

Let’s unpackage this for a minute…

Normally in South Carolina, if someone is eligible for unemployment benefits, the amount of weekly compensation is the lesser of $326 – OR – approximately half of his or her recent average weekly wages.  (For the sake of time, this is a highly oversimplified explanation and leaves out many important factors, so I’ve included links below with additional details.)

For example, let’s say someone who had been earning $800 in weekly wages lost his job. In South Carolina, his normal unemployment compensation would be capped at $326 per week using the formula above.

However, with this additional $600/week from the CARES Act, he would have received $926 per week in unemployment compensation, which is more than he earned while working.

We do need to recognize that some of his expenses (e.g. healthcare) may be higher while unemployed, while other expenses (e.g. transportation costs, Social Security & Medicare taxes) may be lower.  We’re just talking general numbers here.  In this example, if suitable employment were to become available at his old salary, he’d be giving up roughly $500 more per month to leave unemployment and return to work.

🔹 Last Friday, this extra $600/week in unemployment compensation expired. This means folks on unemployment are now returning to their state’s regular policies for unemployment compensation. 

🔹 Congress is trying to decide what to do next, since this pandemic may be with us for a little while longer.

On one end of the spectrum, some believe we should extend (or even increase) this $600 per week.  That is seriously problematic and is exactly what Treasury Secretary Steven Mnuchin was warning about during a recent interview.  He said, “In certain cases where we're paying people more to stay home than to work, that's created issues in the entire economy.”  He’s correct – anything that incentivizes people not to return to the labor market hurts our economy.

There are other, perhaps more reasonable proposals that would cap unemployment compensation at a percentage of previous wages.  Different people in Congress have different ideas on what that percentage should be: 70%, 80%, 90%, 100%.  Either way, this strategy is based on the obvious fact that unemployment benefits should be a temporary safety net, not a pay raise.

🔹 We’ll have to wait to see what unfolds from these negotiations…

One final note in the meantime: When we talk about getting people back to “suitable employment,” that phrase has a very precise definition by the South Carolina Department of Employment and Workforce.  “Suitable employment” is related to someone’s work experience and recent wages. One of the links below has information on this.  It is not appropriate to throw people into any job that happens to come along, or a job for which they may not be qualified, or a job that pays significantly less than prior wages.

Eligibility requirements and the definition of “suitable employment” can be found here:

Information on how unemployment benefits in South Carolina are determined:

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