The Enhanced Unemployment Benefit under the CARES Act - Potential Unintended Consequences

One of the key provisions of the CARES Act is a $600 per week enhancement to each State's unemployment benefit. Anecdotal evidence indicates this attribute of the massive legislation may lead some workers to choose to stay off the employment roles during the coming months, even if they have the option of returning to work. Depending on their wages, they could collect more staying home from a job than working; a choice made easier if the Covid-19 risk remains.

For example, Illinois calculates the weekly unemployment benefit by taking earnings for two prior quarters (if earnings fluctuate the two highest quarters during a base period are used), multiplying that amount by .47, and then dividing the result by 26, subject to a maximum weekly unemployment benefit of $484 (for a single person). Thus, an employee paid $50,000 per year (or $962 per week), would have $25,000 gross during the prior two quarters and 47% of that amount would yield $11,750, and thus $452 per week of unemployment.

Under the CARES Act, moreover, there is an enhanced unemployment benefit of $600 per week, which has the potential to rearrange employment incentives. The person earning $50,000 per year would collect $1,052 per week in gross unemployment benefits ($600 under the CARES Act and $452 under current law), which is more than their weekly wage of $962. And if the employment separation does not trigger lost benefits (e.g., health insurance, 401k matching) because they never existed in the first place, the incentive to stay home becomes clearer. Furthermore, the option of returning to work might not defeat an unemployment claim in the current Covid-19 environment because an employee is not required to take or resume a job that endangers their "safety, health or morals."

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