Generous Unemployment Benefits May Tempt Employers, Employees

Generous Unemployment Benefits May Tempt Employers, Employees

Holdouts who objected to remarkably generous unemployment benefits eventually caved and joined the rest of the U.S. Senate to approve a $2 trillion pandemic relief package late Wednesday night.

Assuming the Senate's hard-fought language is approved in the House on Friday, employers will face this good news/bad news: Many of their employees will benefit financially from being laid off. In addition to one-time checks for $1,200 for low- and middle-income adults and $500 per child under 17, workers who lose their jobs because of the COVID-19 crisis will get $600 per week in addition to their usual state unemployment insurance benefits for up to four months.

"If this unemployment 'weekly bonus' goes into effect, it will be impossible to maintain a workforce," an Arkansas manufacturing executive complained before Wednesday's Senate vote. He asked not to be identified. 

"It's a terrible element in the legislation," said Randy Zook, president and CEO of the Arkansas State Chamber of Commerce and Associated Industries of Arkansas. "It was done in haste and we will pay dearly in unintended and unforeseen ways."

Jeremy Horpedahl, assistant professor of economics at the University of Central Arkansas at Conway, called the bonus unemployment benefit "the most significant support from the federal government for individuals suffering from the economic slowdown, much more so than the one-time $1,200 check."

Depending on their previous income, Arkansas workers can collect up to $451 a week in unemployment benefits. The extra $600 will push some workers above $1,000 a week, which could be tempting for both employee and employer.

"The trade-off for Arkansas is … there’s now a larger incentive for workers to ask to be laid off or for business owners and managers to lay off workers they might otherwise keep on knowing they’ll receive larger benefits," said Horpedahl, who is also a research scholar at the Arkansas Center for Research in Economics at UCA. 

And there's good news and bad news with that as well.

"Fewer people at work might be good for social distancing, but increasing Arkansas’s number of unemployed could add up to a large bill for a state with decreasing tax revenue and inadequate reserves," Horpedahl wrote in a statement to Arkansas Business.

The state's unemployment insurance fund has a balance above $844 million, according to Mike Preston, Arkansas' secretary of commerce. How long will that last? It depends on the future balance of payroll taxes collected versus the number of claims. The trust fund paid out $133 million in benefits in 2018, when the statewide unemployment rate was around 3.5%.

For the manufacturing executive, the unemployment bonus is "one of the most absurd policy decisions I have ever seen. Pay people far more for being unemployed than working. Brilliant."

And yet, it also seems like an easy answer to his management problems.

"We are dealing with coronavirus issues in the workplace every day. We are losing piles of money. Our employees can earn 50% more money drawing unemployment than working. What to do? Gee, I'm stumped. Any suggestions?"