High unemployment benefits may make it tough for employers

DOVER – Although a reported 50,000 Delawareans have filed for unemployment since the start of the coronavirus outbreak, many will likely find that they are making substantially more than they would have working – thanks to assistance from the federal government.

That may inhibit the efforts of some essential businesses looking to add to their workforces to support necessary commerce during the pandemic, as well as employers who are looking to take advantage of the federal Paycheck Protection Program, a forgivable loan program for employers who maintain staff.

Secretary of Labor Cerron Cade | PHOTO COURTESY OF DOL

Under the $2 trillion CARES Act approved in March by Congress, those filing for unemployment in their state due to coronavirus-related job losses are eligible to receive an additional $600 per week benefit through July 31. With Delaware’s current maximum $400 weekly benefit, it means those on unemployment could collect as much as $1,000 a week, translating to a 40-hour wage of $25 per hour.

Delaware Department of Labor Secretary Cerron Cade said that higher wage level was intended by politicians who are seeking to “flatten the curve” in slowing the virus’s spread.

“This isn’t a typical marketplace,” he told Delaware House Small Business Caucus lawmakers in an April 7 conference call. “We actually want people to stay at home, and we don’t want them to wake up on a Tuesday and say, ‘I can’t make ends meet, let me go drive for Uber.’”

With many of the most affected industries, including restaurant, hotel, retail and service, typically paying wages below that rate, some employers are crying foul that employees they continue to keep on payroll are likely earning far less than if they were collecting unemployment. According to 2018 state data, many of the workers most affected by the pandemic earned an average wage of less than $15 an hour.

One Rehoboth Beach hotel manager on the conference call asked Cade how the wage discrepancy was “fair to the person who is still getting up every morning and going to work.”

Cade conceded that incentivizing unemployed workers to not seek new work is inherently unfair to other essential workers who may be earning less than $25 an hour during the crisis, but lowering that financial aid would likely convince more unemployed workers to travel in seek of work.

“I definitely understand folks’ trepidation about that, and I understand the competitive edge it gives unemployment over work. I just think there were unique times, and those typical market-based principles just are not going to apply in this scenario,” he said.

Delaware is not alone in the unique predicament where it pays to stay home. A recent study by RBC Capital Markets found that up to 70% of America’s millions of unemployed workers will earn more from the government assistance program than they did working.

U.S. Sen. Chris Coons (D-Del.) said that senators originally sought to create an additional federal benefit to be added to state allotments that would fund workers at their latest wage level. At issue is the wide disparity in weekly maximums paid out by states, ranging from a low of $235 in Mississippi to a high of $823 in Massachusetts.

The lawmakers turned to the U.S. Department of Labor to try to help them determine a formula that could accomplish the task, but were told that work could take six months, Coons said.

“The computer systems of most state departments of labor and the federal Department of Labor are so old that many of them are written in COBOL, and they have to hire retirees come back and program them,” he said in a March 29 conference call with the Delaware State Chamber of Commerce.

In order to include some funding as soon as possible, the senators decided to take the average of all wages of all unemployed people in 2019 and then the average amount that the average state provides in unemployment benefits for that wage, which worked out to $600, Coons reported.

“You will have some cases for four months where some people will make what is viewed as an unacceptably high amount of money,” he conceded.

Cade said that he believes employers won’t be at a disadvantage once Gov. John Carney lifts his state of emergency order, which waives an unemployment benefit recipient’s requirement to seek employment or risk losing the benefit. He also said his understanding is that the federal funds would no longer be eligible once the state of emergency is lifted – meaning unemployed workers after that point would have to prove they are seeking employment and could only receive a maximum $400 benefit.

Coons argued that once the pandemic eased, workers would rather have the security of a steady paycheck than continue collecting unemployment benefits that will, by current law, drop considerably in August at the latest.

By Jacob Owens

jowens@delawarebusinesstimes.com