Economic recovery comes with “benefits cliff”

Employers added 590,000 jobs in June, bringing the number of open positions in the United States to about 10 million. In July, the unemployment rate fell to 5.4 percent—still more than the pre-pandemic rate of 3.5 percent but far better than 14.7 percent in April 2020. Despite the jobs available, 12 million Americans continue to receive unemployment payments.

Many of those recipients are gig and part-time workers like Pamela Mohar, of Ann Arbor, Mich., who told CBS News she has been looking for work since last fall. In April, she graduated with a master’s degree in creative writing. Now she is working a few part-time jobs but hasn’t landed a full-time position.

Mohar is one of an estimated 7.5 million people who will stop receiving pandemic unemployment assistance as of Labor Day. Early in the pandemic, the government expanded federal unemployment benefits to cover many people who did not qualify for state assistance, including gig workers and people with part-time jobs. The CARES Act also added weekly bonuses to state unemployment payments and extended the time period for which people could receive them.

As businesses reopened, conservatives called for Congress to end welfare expansions to get the economy rolling. In the December 2020 omnibus bill, Congress reduced the weekly unemployment bonuses from $600 to $300 but chose to extend the programs.

When President Joe Biden and the Democrats took control in January, they ignored calls to wind down the programs and extended the benefits again in the American Rescue Plan Act. Biden recently confirmed that he finally intends to let the benefits expire on Monday.

About half of U.S. states already ended their participation in the federal unemployment assistance expansion.

“From conversations with business owners across the state, we know that they are struggling not because of COVID-19 but because of labor shortages resulting from these excessive federal unemployment programs,” Missouri Gov. Mike Parson said on May 11 when he announced his state’s withdrawal from the program. “It’s time that we end these programs that have ultimately incentivized people to stay out of the workforce.”

On Aug. 19, Treasury Secretary Janet Yellen and Labor Secretary Martin Walsh sent a letter to Congress saying that the benefits would expire on Sept. 6 as planned. The so-called “benefits cliff,” as it is called, will affect an estimated 7.5 million people, according to the American Enterprise Institute. Two-thirds of them are only receiving federal benefits and will lose all unemployment income, while the rest are eligible for state benefits. Yellen and Walsh noted that states can, if they wish, access COVID-19 relief funds to provide more assistance to unemployed people.

“One of the ironies of the coming cliff is that it was intentional,” American Enterprise Institute scholar Matt Weidinger wrote. The December 2020 bill that extended the benefits included “soft phaseouts.” Instead of ending things all at once, it allowed continued payments for a time after the program stopped accepting new applicants. The American Rescue Plan Act replaced those soft phaseouts with the abrupt Labor Day deadline.

“In the bizarre logic of some liberal policymakers, hard cutoffs improve the odds that Congress will approve another extension,” Weidinger said. Because half of states are no longer participating in the emergency unemployment programs, congressional Democrats had little chance of passing another extension. Now citizens of the blue states that have continued the unemployment assistance will suffer most from the benefits cliff. Instead of pushing for an extension, Democrats are calling for permanently expanding unemployment assistance in the future.

Mohar said she prepaid her bills for the next two months in preparation for Monday’s expiration date. “Once that last check comes, that will be devastating not to know where the next check will come from,” she said.