If Congress doesn’t take action, the enhanced benefits will run out at the end of July.
New estimates from the Congressional Budget Office show that extending the extra $600 unemployment benefits until 2021 would boost consumer spending but stifle growth in other areas. The CBO estimates that if the benefits are extended until January 31, 2021, then roughly 80% of people would take home more through unemployment than they would if they were employed.
Consumer spending on food, housing, and goods and services would be closer to levels seen prior to pandemic-induced unemployment. Economic activity would be higher in the second half of the year but activity in 2021 would be lower if the benefit were to be extended.The CBO chalks these effects up to two separate issues: demand and incentives to work.
Extra unemployment benefits will boost demand for consumer goods and services because people will have more cash on hand—that will boost output and employment. The benefits would also put pressure on the economy in the other direction—the CBO says the benefits would reduce incentives to work for those who take home more from unemployment than they would otherwise earn, and that has the potential to depress both output and employment.
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