An unintended and unexpected consequence of the multitrillion dollar stimulus package is that workers are asking to be laid off or reluctant to go back to work after being furloughed.
In an effort to help people financially cope with their job losses in the midst of a pandemic, the federal government—through the Coronavirus Aid, Relief and Economic Security Act (CARES Act)—is providing an extra $600 per week in unemployment benefits. This amount is in addition to what the states already pay, which is in the range of $200 to $300 per week.
A person could conceivably earn $1,000 per week on unemployment, depending upon the state he or she resides in. In addition to the enhanced benefits, most Americans, earning less than $75,000 in 2019, received a one-time check for $1,200 and $500 for each child under 17 years of age.
Here’s the situation facing companies that have already been financially hurt by the consequences of the COVID-19 outbreak. Consider a worker in an Amazon warehouse. The worker has to be on their feet all day, lift heavy boxes onto and off of high shelves and race around the facility to fulfill orders. Earning a minimum wage of $15 per hour, the person may make pre-tax $525 per week. Think of how many millions of other people work at dangerous, physically demanding or unpleasant jobs earning a similar amount.
Not to disparage anyone, but it’s enticing for a person to ask to be laid off, so they can earn more money than if they were to work that physically demanding job. They may want to ride out the pandemic safely at home, collect unemployment checks and later return to the job market once things look safer with possibly more available opportunities if the economy improves.
The unintended consequences may make it difficult for companies to get back their furloughed workers. Without their staff, business will have an extra burden to keep things alive. They may be forced to hire new people and train them from scratch, which takes time and money.
Florida Senator Rick Scott is not a fan of the increase in unemployment benefits and wrote, “Businesses looking to reopen are telling us their employees don’t want to come back to work because they collect more on unemployment.” Scott‘s email also added, “And who can blame them? We cannot be paying people more money on unemployment than they get paid in their job.”
Many state unemployment offices have complaints that they’ve been overwhelmed by the demand of people seeking benefits and were unable to keep up with the requests for claims. Coincidentally, residents of Florida have angrily said that they’ve been unable to get neither jobs nor unemployment benefits. Roughly 1.8 million Floridians have lost their jobs due to the coronavirus. Only about 153,788 have been able to receive their unemployment checks.
A business owner in Pennsylvania, Meagan Beatty, said about the large unemployment payments, “It’s put us in a weird position, because we are asking [employees] to come back to work, but they’ve told us they don’t feel safe, or they have said, ‘Why should I be paid less than I’m getting at home?’” She tried to consider raising the salaries for her workers as an enticement for them to come back to work. “Our revenues have declined by 100%. And if we reopen, we will have 50% of the business we had,” Beatty lamented.
Moran Iron Works is a Michigan-based factory that laid off about 75% of its staff due to the slowdown in business. Company owner Tom Moran sees things picking up, but has a problem. “Now we want to bring people back, and they don’t want to come back,” he said.
Offering a back-of-the-envelope rough calculation, Moran cites that unemployment payments for his laid-off workers amounts to $962 per week. This is over $80 higher than what Moran pays his welders and $353 more than some of his average workers.
A spa owner in Washington state, Jamie Black-Lewis, has a similar story to tell. She received a loan through the Paycheck Protection Program, as part of the stimulus package that offered forgivable loans to small businesses if they retain their employees for a designated period of time.
Black-Lewis had furloughed 35 staff members at her spa and was excited to tell them of the good news that she now had the funds to rehire them. The workers were none too pleased over the prospect of having to return to work. She says that there was animosity and anger as her laid-off employees were earning more money from unemployment. Frustrated, Black-Lewis begged the question, “On what planet am I competing with unemployment?”
Furloughed workers who decline to return to their jobs are playing a dangerous game of chicken. Over 26 million Americans have lost their jobs. The Federal Reserve Bank predicted roughly 50 million more may be out of work by the summertime. The $600 extra dollars lasts only up until July 25.
When the extra $600 dollars runs out and people return to the job market, those who are just getting off of the sidelines will face intense competition from the massive amount of other unemployed people also looking for jobs. With so many folks out of work, companies won’t have to pay a premium to hire and wages will most likely go down.
It won’t be easy for business owners either. Some companies that have been forced to shut down may not have the financial resources to open again. The businesses that can reopen, had to deal with weeks—if not months—of little or no revenue. They won’t be in a sound financial condition to offer strong salaries and benefits and will barely get by.