COVID-19 has caused economic havoc, leaving millions of Americans without work. In fact, the country is facing an unemployment rate of 11.1% right now, which is nearly a record high.
Sadly, things could get much worse for those who are without a job if Congress doesn't take action soon. That's because while the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provided an extra $600 in weekly unemployment benefits, this increased benefit is set to expire on July 31.
If that happens, unemployed workers could see their income fall to the average benefit states provide -- which would mean a drop of just over 64% compared with the expanded benefit. This could affect not just the unemployed, but everyone who depends on a functioning U.S. economy, including investors and those lucky enough to still be working.
Here's why income could drop so dramatically
Unemployment benefits help out those who are out of a job, but they typically don't provide a ton of money. In fact, according to the Center on Budget and Policy Priorities, the average unemployment benefit across the country in April of 2020 was $333 weekly. Meanwhile, the Bureau of Labor Statistics reports that median weekly earnings of full-time workers in the U.S. came in at $1,002 in the second quarter of 2020. So these benefits typically replace only around 33% of income for the average worker.
Because COVID-19 has left a record number of people unemployed, lawmakers took action to prevent millions of Americans from experiencing a dramatic drop in income after job losses left them without paychecks. The extra $600 in weekly benefits they provided in the CARES Act kept millions out of poverty and helped to prevent a serious economic depression.
The problem is, those extra benefits are slated to end this week, unless lawmakers take action. And while Democrats want to extend them, those on the right aren't onboard. In fact, they fear many people won't go back to work, since their unemployment income is higher than their pre-pandemic income.
The GOP is willing to provide some extra money for laid off workers, as a proposed stimulus bill put forth by Senator Mitch McConnell would temporarily authorize an extra $200 in weekly benefits. This would last until states can arrange to provide workers with unemployment income capped at 70% of their pre-pandemic salary.
Unfortunately, with the GOP and the Democrats far apart on their proposed coronavirus stimulus plans, it's possible no bill will pass at all -- especially before July 31. If the benefit boost from the CARES Act is allowed to expire without lawmakers passing a bill to do something for the jobless, the average unemployed worker will see that 64% income drop when benefits go from the expanded $933 to the average of $333.
What can you do to prepare?
If you're concerned about the impending drop in unemployment benefits, now is the time to contact your representatives. Negotiations are under way on the next COVID-19 bill, and you'll want to make your voice heard. Those who are unemployed and looking at a major loss of income should also start working on budget cuts, saving money, and considering side gigs as an option during the 2020 recession.
The drop in unemployment benefits won't just affect those without jobs, though -- everyone could be, because when people don't have money to spend, the entire economy realizes reduced consumer demand and a deeper recession that takes longer to recover from. Because of that, if you still have a job, you may want to review your investment strategy since another market crash could very well occur if lawmakers don't take care of those left without work as COVID cases spike.