Continuing to Inflate Unemployment Checks Will Further Deplete Businesses

By Erinn Broadus

The end of July signaled the end of the weekly $600 unemployment checks many have been receiving. This deadline has been met with frustration from many of those who depended on the additional income but is a welcomed change for many business leaders—especially those businesses that hire low-wage employees, such as restaurants.

House Democrats passed the Health And Economic Recovery Omnibus Emergency Solutions (HEROES) Act in May which would, among other things, extend the $600 weekly unemployment payouts. This week Senate Republicans responded with the Health, Economic Assistance, Liability Protection, and Schools (HEALS) Act. The HEALS Act reduces the weekly stipend from $600 to $200 through September. In October, the unemployment benefits will factor in state benefits to provide 70 percent of lost income. At the cost of $1 trillion, the HEALS Act is $2 trillion less than the countering bill provided by the Democrats.

Kentucky businesses have been hit hard by COVID-19. In downtown Louisville—a hub of restaurants and nightlife for the state—many establishments have been forced to close permanently. For those that have managed to survive, most have been forced to board up their windows in the wake of violent protests. Adding fuel to the fire is the unfortunate reality that many businesses are having trouble getting workers to show up.

The unemployment checks were put into place to keep the economy afloat and provide the necessary funding for families and individuals who lost their job during the pandemic. Unfortunately for businesses, many people are making more money off unemployment than they were when they were employed.

In fact, new research from the University of Chicago found that nearly 70 percent of those eligible for unemployment would pull-in more money from unemployment than their original jobs. They found that the median replacement rate—the distribution of lost earnings replaced by unemployment insurance—was 134 percent and one out of five eligible individuals will receive unemployment benefits that are twice the amount of their normal wage. Similar research by the Congressional Budget Office and reported by CNN found that five out of six individuals receiving unemployment would receive more than their normal wages if the checks are extended through January.

In Kentucky, the replacement rates exceed the national average. For Kentuckians that are eligible for unemployment, the replacement rate is 216 percent for low income individuals, 155 percent for middle income individuals and 103 percent for high income individuals. Kentucky’s replacement rates are higher than its neighbors Tennessee, Indiana, and Ohio in all three income brackets.

A similar study by American Action Forum found that 63 percent of workers nationwide currently make more on unemployment than they did while employed. The analysis uses 2019 wage data and assumes the maximum benefit in each state. Kentucky is among the 11 states with 75 percent of workers receiving more on unemployment than they would working—the highest in the nation. Among our peer states, Kentucky surpasses Tennessee (60 percent), Ohio (65 percent), and Indiana (65 percent).

Percentage of Workers Making More on Maximum Unemployment

Insurance than Employment

In sum, Kentucky surpasses its peer states and leads the nation in both the percentage of workers receiving more in unemployment benefits than they did employed, and the distribution of lost earnings replaced by unemployment insurance.

Kentucky businesses continue to struggle with reopening under the new COVID-19 guidelines and vandalism from protests. More than 20 restaurants have closed their doors for good and a survey by the Chamber of Commerce of 443 businesses found that 79 percent have lost revenue, 55 percent are facing cash flow issues and 28 percent have had to suspend operations. A survey by the National Federation of Independent Business Research Center found that one in five small businesses had potential employees decline a job because they wanted to stay on unemployment, as reported by CNN.

The Commonwealth is currently facing unprecedented challenges as businesses struggle to stay afloat while adhering to capacity restrictions, looting, and a global pandemic that keeps many indoors. The last thing Kentucky needs is to further disenfranchise the economy and the small businesses within it by paying workers to not work.