What the upcoming ‘benefits cliff’ means for the economy

·Senior Editor
·6-min read

“The 360” shows you diverse perspectives on the day’s top stories and debates.

What’s happening

Millions of Americans are set to lose unemployment benefits on Monday, when federal policies to support the jobless during the coronavirus pandemic come to an end.

Enhanced unemployment insurance was one of the key elements of the first stimulus bill, which was passed by Congress in March 2020 as nationwide lockdowns derailed the U.S. economy. The program provides extra federal money — $600 a week at first, $300 a week currently — in addition to state unemployment funds. The bill also expanded eligibility so gig workers, freelancers and others who typically don’t qualify for unemployment could receive weekly support.

These provisions will expire nationally on Labor Day, but 26 states — all but one led by Republican governors — have already stopped distributing the extra funds in an effort to persuade the unemployed to return to work. Still, an estimated 7.5 million Americans will lose their benefits entirely and another 3 million will see their weekly payments reduced by $300, according to an analysis by the left-leaning think tank the Century Foundation.

Some progressive lawmakers have called for Congress to extend the emergency benefits, but President Biden, key members of his Cabinet and some moderate Democrats have all said they support allowing the program to expire as scheduled.

Why there’s debate

Many conservatives are eager to see enhanced unemployment end because they believe the extra money is keeping millions of people from getting back to work despite record numbers of job openings, a trend they argue is stifling the country’s economic recovery.

Treasury Secretary Janet Yellen and Labor Secretary Marty Walsh argued in a letter released earlier this month that the economy has rebounded to the point where a federal boost to benefits is no longer necessary. “Our nation is getting back to work,” they wrote. This view has been echoed by moderate Democrats like West Virginia Sen. Joe Manchin, who said he is “done with extensions” because “the economy is coming back.”

Others say the upcoming “benefits cliff” will strip millions of Americans of desperately needed support while doing little to boost employment. They argue that there are a variety of factors keeping people from working — fear of the Delta coronavirus variant chief among them — that will still be in place once benefits run out. When combined with the recent end of the eviction moratorium, the loss of benefits could push many families into homelessness or unsafe congregate living situations, some activists argue.

A recent study comparing job growth in states that ended enhanced unemployment early found that only a small fraction of people who lost their benefits rejoined the workforce. The rest remained unemployed and were forced to get by on a smaller income. This led to a marked decrease in household spending that could hurt local economies if it occurs on a large enough scale, some economists say.

What’s next

The Biden administration has encouraged states with high jobless rates to extend enhanced unemployment on their own using federal stimulus money that has already been distributed. Currently no states have announced plans to do so, though that could change once the impact of the program’s expiration becomes clear.


Enhanced unemployment is no longer necessary

“With vaccines widely available and record job openings, it is well past time for these extraordinary benefits to end.” — Matt Weidinger, National Review

More people will find motivation to work once free money stops pouring in

“Quite frankly, if people were making more for doing nothing than going to work, there would be little incentive to seek employment.” — Christopher Tremoglie, Washington Examiner

Ending benefits may be the only available tool for boosting job growth

“Many other factors affect labor supply — greater child-care duties, continued health fears, possibly changing attitudes toward work — so reducing UI benefits is not a cure for all that ails the labor market. But of these factors, unemployment insurance is the most directly affected by policy decisions.” — Noah Williams, City Journal

Targeted help for those who need it most would be better than nationwide stimulus

“I don’t want to sugarcoat this. There is no question that millions of Americans are struggling, and for whom $300 a week is a big deal. But there’s also plenty of data to suggest that many others are riding out the pandemic in good shape. There’s no one-size-fits-all policy to accommodate everyone. If times are flush for millions, then surely we can find a way to continue helping those who aren’t so fortunate.” — Paul Brandus, MarketWatch

Millions of vulnerable people will struggle when benefits disappear

“If you’re saying, ‘I’m just going to shut off your benefits,’ but I still don’t have child care, and I still don’t have a way to ensure my child is attending their digital school, how is that going to force me into the labor market? It may force me into homelessness. It may force me to be hungry. There’s an enormous number of workers that are still behind on rent. This whole narrative is just completely wrong, and it’s incomplete.” — Rebecca Dixon, executive director of the National Employment Law Project, to Vox

Critics of the benefits have a weak understanding of why people aren’t working

“At some point, it seems like we just decided that everyone’s going to go back to work. But no one was asking the workers, what’s going on? How’s your work search going? Are you feeling comfortable going back to work? Are you having success finding jobs that work for you?” — Wisconsin Watch reporter Bram Sable-Smith to Slate

The economy is rebounding only for certain classes of Americans

“Even as businesses have reopened, stocks have regained their value and employment, spending and national output have rocketed up, some of these improvements are not shared universally — leaving the hardest-hit Americans at risk of falling even further behind.” — Tony Romm and Rachel Siegel, Washington Post

Cutting people’s incomes will stifle economic growth

“While the early termination of benefits may not have had much influence on job growth, it likely had a bigger impact on spending. ... That has big implications for local economies, which were propped up by the pandemic compensation and other relief measures Congress enacted.” — Tami Luhby, CNN

The harm will be felt more intensely once benefits are cut in high-population blue states

“The one saving grace of this whole debacle so far has been that the majority of the population (unemployed or otherwise) live in the states that have not yet cut benefits. But those cuts are coming on September 6 and are likely to be quite devastating in their magnitude.” — Matt Bruenig, People’s Policy Project

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Photo illustration: Yahoo News; photos: Getty Images

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