WASHINGTON — An additional $600 per week that has provided a vital financial cushion for unemployed Americans is set to expire next week. On Thursday, top Republicans said they had reached agreement on a proposal to replace a benefit that has helped millions of laid-off workers and been a boon to consumer spending amid a deep recession.
Their plan would continue to offer larger-than-normal payments to workers filing for unemployment benefits. But it would significantly reduce the amount of money flowing each week to those without a job, at a time when 30 million people remain unemployed and the recovery from a pandemic recession is stuck in the mud.
Trump administration officials say their proposal would replace weekly lump sums from the federal government with enhanced benefits, which, when added to state benefits, would amount to 70 percent of what a worker was making before they lost their job.
Democrats, who want to keep the additional $600 weekly stipend going, say there are significant technical hurdles to carrying out the Republican plan.
Many economists warn that the reduced assistance could cause rippling damage across households and the broad economy.
Some conservative activists, however, continue to push Republicans to oppose any additional aid for the unemployed, warning that such funds would discourage Americans from returning to work.
Here’s what’s in the plan, why it’s likely to change and what it could mean for the nation’s recovery.
Under the Republican plan, which Mark Meadows, the White House chief of staff, and Treasury Secretary Steven Mnuchin announced on Thursday, the federal government would stop supplementing workers’ state unemployment benefits with the weekly $600 lump sum.
Instead, the federal government would provide additional money on top of state benefits so that workers received a percentage of their previous salary.
Mr. Meadows and Mr. Mnuchin suggested that the opening Republican bid would be for workers to receive 70 percent of their previous salary in combined state and federal benefits — which works out to an average of about $200 per week in federal benefits for a typical worker.
In other words, a typical unemployed American’s benefits would drop $400 per week from the benefits currently in place.
The idea of basing benefits on workers’ previous wages isn’t new. That’s how regular state programs work, and it’s what Democrats initially proposed when the supplemental benefits were first approved in March. At the time, Democrats wanted to set benefits at 100 percent of workers’ former wages.
Labor Department officials, however, told them that plan was impossible because of the antiquated computer systems in many state unemployment offices. That hurdle led to the compromise of an additional $600 per week, which was enough to bridge the average gap between state unemployment benefits and what workers were earning before losing their jobs. But conservatives quickly criticized that extra money as a disincentive for people to return to work, saying some workers were making more sitting home than they were on the job.
Mr. Mnuchin and Mr. Meadows expressed confidence on Thursday that those technical issues could be solved in time to transition to a wage-replacement system next month. Top Democrats disagreed.
“With their outdated technology, it would take states weeks to implement any change to the $600 boost,” said Senator Ron Wyden of Oregon, the top Democrat on the Finance Committee. “This would cause significant disruption. The only option that ensures families can pay August rent is extending the $600.”
The extra unemployment benefits have been injecting billions of dollars per week into the American economy. If those benefits shrink, less money will flow to landlords, stores and countless other businesses when the economic recovery is already losing steam.
Research has found that unemployment benefits are an unusually potent form of fiscal stimulus, because the money goes to the people who are the most likely to spend it. (Food stamps are similarly effective, for the same reason.) A recent working paper from economists at the University of Chicago and the JPMorgan Chase Institute found that spending among benefit recipients actually rose by 10 percent above their pre-pandemic level. Among low-wage workers, the increase was even greater.
“It’s not just providing insurance for these families in terms of the hardship they were experiencing due to job loss, but in fact it’s propping up consumer spending,” said Fiona Greig, one of the study’s authors.
This is a dangerous moment to begin pulling away that support, said Aneta Markowska, chief economist at the investment bank Jefferies. Real-time measures show that economic activity is declining as the virus surges in many parts of the country, forcing some states to order businesses to close back down. Other government support has already been ebbing, as loans under the Paycheck Protection Program expire and the $1,200 tax rebate checks sent last spring fade into memory.
“When you look at this loss of momentum in activity, I think everyone’s tendency is just to focus on Covid, but it also corresponds to the fading of fiscal support,” Ms. Markowska said. That means the economy needs more help from the government right now, not less, she said.
Economists think about unemployment insurance in terms of the “replacement rate” — the share of workers’ previous earnings that they get in unemployment benefits. Before the pandemic, the average replacement rate in the United States was around 45 percent, meaning that a worker who earned $1,000 per week could expect to get around $450 in weekly benefits. But the rate was far lower in some states, especially in the South; in Mississippi, the maximum weekly benefit is $235.
The $600 a week in extra benefits have pushed replacement rates above 100 percent in much of the country. Research from a team of economists at the University of Chicago estimated that two-thirds of jobless workers could make more on unemployment than they were able to earn while working. One in five workers would earn twice as much.
In normal times, economists worry that if unemployment benefits are too generous, they could discourage workers from seeking new jobs. But that is less of a concern when the unemployment rate is high and jobs are scarce. A recent analysis by Ernie Tedeschi, a former Treasury Department official and an economist at Evercore ISI Research, found no evidence that the extra benefits were discouraging people from returning to work.
In a recent survey, prominent economists across the ideological spectrum were nearly unanimous in saying a lack of jobs, not a lack of willingness to work, is holding back the economy right now. Not a single economist in the survey argued for cutting off extra benefits entirely right now.
The most prominent voices calling to cut off benefits are conservative economists who have advised President Trump, including Arthur B. Laffer, Stephen Moore and the University of Chicago economist Casey B. Mulligan, a former top economist at the White House Council of Economic Advisers.
“These benefits are not a ‘life preserver,’ but a job killer,” Mr. Moore wrote in an email newsletter on Thursday. “Our studies find that these high benefits will mean 10 million fewer workers on the job by the end of the year, thus killing any chance of a ‘V-shaped recovery.’”
Conservatives argue that as the economy improves, the current high levels of benefits will become more damaging for both the economy and for individual workers. They argue that the program should be redesigned immediately to prevent anyone from earning more while unemployed, and should be reduced further as unemployment falls.
“Especially with unemployment as high as it’s likely to be this fall, you want to bring it down as quickly as possible and avoid having the problem of severe long-term unemployment, avoid the problem of economic scarring that occurs when people are unemployed for long periods of time,” said Michael Strain, an economist with the conservative American Enterprise Institute.
Progressives argue that there is little evidence that more generous benefits discourage people from looking for work, and that the $600 a week has helped shore up a safety net that is too stingy in normal times. Low-wage workers, who are disproportionately Black and Hispanic, get smaller benefits since payments are based on previous earnings and they also tend to have less savings to fall back on when they lose their jobs. In many states, the minimum benefit amount is less than $100 a week — and benefits tend to be lower in states with larger Black populations.
“The people with the fewest assets going into a downturn often face the longest periods of joblessness, have the lowest levels of savings and then get the lowest levels of unemployment benefits,” said Sharon Parrott, a senior vice president at the progressive Center on Budget and Policy Priorities.
Jim Tankersley reported from Washington, and Ben Casselman from New York.