GOP unemployment plan hurts these groups the most - CNBC

Residents of Imperial County in California wait in a bookkeeping shop in Calexico after filling out unemployment forms on July 24.

Photo by Mario Tama/Getty Images

Senate Republicans unveiled their plan to replace an extra $600-a-week boost in unemployment benefits on Monday.

That subsidy — which the federal government has been paying on top of typical state benefits since early April — formally expires July 31.

Republicans want to replace it with a $200-a-week subsidy through September.

The plan would then shift to a more individual formula, with combined state and federal benefits replacing 70% of lost wages from October through December. Federal aid would be capped at $500 a week.

(States unable to implement the formula that quickly could request a waiver to continue the $200 a week through November.)

The plan is hugely consequential: There are nearly 31 million Americans collecting jobless benefits, about five times the peak of the Great Recession.

So, who would win and lose from this new plan?

Everyone loses

From a personal-finance standpoint, all recipients of unemployment aid lose under the GOP proposal.

This is true for both tranches of the plan: the flat $200 checks and the 70% wage replacement.

Logically, this makes sense: $200 a week is less than $600 a week.

This policy would cut current aid levels by 43% — to about $521 a week — for the average worker, according to a CNBC analysis.

And there's only so much upside from the second tranche (the 70%-wage-replacement scenario) — the $500 ceiling on federal aid is less than the $600 a week people are currently getting.

This aspect of the GOP plan would cut current aid by 44% for the typical worker, according to Ernie Tedeschi, an economist at Evercore ISI and a former Treasury Department official.

Of course, it's worth noting that a 70% replacement rate is "very generous" by historical standards, said Susan Houseman, research director at the W.E. Upjohn Institute for Employment Research.

It's just less generous when compared with the $600 subsidy, and could be debated as to whether it's enough aid given the state of the labor market and difficulty of finding a job, she said.

Some groups stand to lose from the GOP policy more than others. Those groups are listed below.

Lower earners

The $600 weekly boost in unemployment aid has benefited lower earners the most. So they stand to feel the pain of a less-generous benefit more acutely than others.

"Most of the things in the GOP bill appear to be tilted against the lower-wage workers," according to Andrew Stettner, a senior fellow at the Century Foundation.

Consider two people, one making $10 an hour, the other $30 an hour. (That's $20,800 vs. $62,400 a year, respectively.)

On its own, the $600-a-week benefit is a 150% premium over the lower earner's weekly paycheck. But it's just half what the higher earner was bringing home per week.

Lower earners have also lost their jobs more readily than other groups.

Around 40% of people with a household income below $40,000 lost their job in March and early April, according to the Federal Reserve. That was true for 19% of those making between $40,000 and $100,000, and for 13% of those making more than $100,000.

Many in retail and leisure and hospitality jobs, like restaurant workers, have been among the hardest-hit by the pandemic and tend to have lower-paying positions, Houseman said.

"They were, more often than not, making more [on unemployment] than when they were working," she said. "A $400-a-week drop in weekly income will of course hurt them."

Minorities, women and teenagers

Minority groups have been more likely to lose their jobs during the coronavirus pandemic.

The unemployment rate for White workers was 10.1% in June, according to the Bureau of Labor Statistics. But it was much higher for other groups — 13.8% for Asian Americans, 14.5% for Hispanics and 15.4% for Blacks.

The disparity was also stark along gender, age and education lines.

More than 23% of teenagers in the labor force were out of work in June, about twice the country's 11.1% unemployment rate.

Unemployment among adult women vs. men was 11.2% vs. 10.2%.

And the rate for those without a high-school diploma was more than double that of those with a bachelor's degree — 16.6% vs. 6.9%, respectively.

"These groups have been hardest hit by Covid-19 related layoffs and will be most harmed if the $600 extension is not renewed or is reduced," according to the California Policy Lab.

Southerners

Southern states tend to be less generous in terms of the weekly unemployment benefits they pay, a trend that isn't directly related to lower cost of living, according to labor economists.

Mississippi, Arizona Louisiana, Alabama, Florida and Tennessee cap their state-level benefits at between $200 and $300 a week.

States like New Jersey, Connecticut, Rhode Island, Minnesota, Washington and Massachusetts pay more than $700.

That means the $600-a-week federal subsidy went further for residents of states that pay lesser weekly aid — and a reduction would hurt them more.

Residents of high-tax, high-cost states

Unemployment aid in states where there's a high cost of living doesn't buy as much as it otherwise would in a state with a lower cost of living.

The same is true for those living in high-tax areas, since unemployment benefits are subject to federal and state income tax.

There are some caveats. A handful of states waive income tax on unemployment checks. And seven other states don't levy a state income tax at all. Also, jobless workers won't pay Social Security and Medicare taxes like they would on their paychecks.

Part-time workers

Workers getting the minimum weekly payment, or close to the minimum, from their state will be hit especially hard by any reduction in federal benefits.

That's because some states like Hawaii and Louisiana pay as little as $5 to $10 a week in unemployment aid, respectively.

This likely pertains to part-time workers who work few hours. They'd generally be eligible for a small amount of state unemployment aid but have been getting the extra $600 a week.

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GOP unemployment plan hurts these groups the most - CNBC
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