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What happens if $600 unemployment boost runs out for jobless Americans in 11 days

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  • Around 33 million people on unemployment could see up to 75% of their income vanish by the end of the month if Congress phases out $600 boosted federal unemployment payments with no replacement. 
  • “It’s prevented families from having to make financial sacrifices in the midst of a great deal of economic and public health uncertainty,” economist Ernie Tedeschi told Business Insider of the ramped-up payout.
  • The White House is opening the door to keeping between $200 and $400 in additional unemployment payments.
  • If benefits were scaled back to $200-$400 a week, the economist estimated there would be 600,000 to 1.1 million fewer jobs in the economy depending on the amount.
  • Visit Business Insider’s homepage for more stories.

Around 33 million Americans are collecting ramped-up unemployment benefits in the middle of a recession sparked by the coronavirus pandemic. But that federal lifeline is set to expire in 12 days without anything else to replace it.

That prospect, economists say, could cause millions of jobless Americans to fall into financial calamity during the pandemic. Ernie Tedeschi, head of fiscal analysis at Evercore ISI, said in a note that people on unemployment could see their incomes plummet between 50% and 75%. It would also shave off 8% of GDP this summer.

The boosted weekly payments have “kept individual families whole,” Tedeschi told Business Insider. “It’s prevented families from having to make financial sacrifices in the midst of a great deal of economic and public health uncertainty.”

He added that low-income workers were able to continue paying bills and buying essentials like groceries, helping maintain their spending levels and ultimately shoring up the economy. But Republicans are seeking to scrap the $600 weekly boost, arguing the beefed-up payments disincentivize job seeking.

Allowing the enhanced benefits to expire “would would make the recession deeper, longer and more entrenched,” Darrick Hamilton, an economist at The Ohio State University, told The Washington Post. 

In March, Congress and President Donald Trump authorized a $600 federal supplement to state unemployment benefits to keep people afloat during a wave of massive job losses.

Combined with the $1,200 stimulus checks, the beefed-up unemployment benefits helped prompt quicker rebounds in consumer spending, particularly among low-income households. That trend is illustrated below in a Deutsche Bank graph shared by Yahoo Finance reporter Myles Udland.

The Post reported that Americans earned $70 billion less in wages and salaries in May compared to February. That stemmed from job losses and employers cutting workers’ hours. But federal unemployment benefits leveled off that sharp reduction with $70 billion pouring into the economy each month.

Experts say the unemployment rate, which stands at 11.1%, will remain high for much of the year. Now the White House issignaling it could support extending between $200 and $400 in additional weekly unemployment payments past the end of July.

Tedeschi said if Democrats and Republicans compromised on a $300 boost, for example, it would cause significant belt-tightening among many families already strapped for cash.

“That’s still a quarter to a third of their benefits that would disappear overnight and not be there anymore. That’s going to force some very hard choices by families,” he said.

Tedeschi says scaling back benefits at this stage would set back the recovery. Should Congress move to shrink benefits to an extra $200 per week, the economist estimated there would be 1.1 million fewer jobs in the economy by the end of the year. If the federal supplement became $400 each week, there would be 600,000 fewer jobs instead.

“That is not an economic catastrophe. That is a self-inflicted wound at a time when economic uncertainty is higher, not lower,” he said.

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