Tens of millions of Americans are dealing with a pandemic shock of job loss, no savings, insurmountable debts, a potential rent eviction wave, hunger crisis, and a fiscal cliff where federal government lifelines of Washington stimulus checks are set to expire on Friday.
A perfect storm of depression is swirling above households where the virus-induced downturn has easily set them back a decade. With auto loans, credit cards, and other bills deferred, for the time being, expiring $600 per week checks, seen as lifelines for many, will unequally pressure folks in different metropolitan areas.
No matter what, households will be hit with a cash crunch, even though their debt servicing payments have been deferred, their income streams have been severed. We recently noted a quarter of all personal income is derived from the government.
With Americans more dependent on the government for income streams than ever, Republicans and Democrats are at odds of how large the next round of stimulus should be. There’s talk Republicans want to reduce the upcoming series of direct payments from $600 to $200 per week, something Democrats have criticized.
White House chief of staff Mark Meadows said both parties are “nowhere close to a deal,” while a fiscal cliff is set to hit on Friday. This means formerly full-time workers across the country will struggle to survive.
The value of the $600 benefit becomes clearer when you consider existing safety nets for jobless Americans.
A weekly unemployment check is usually a fixed percentage of a worker’s previous income, known as the replacement rate, subject to a maximum total. But there’s wide variation in the amounts states offer for both of these metrics.
While the replacement rate has a fairly wide range, the real differentiator is the maximum weekly amount. The U.S. average is $472, but Arizona and a handful of southern states offer no more than $275 in benefits per week. North Carolina, one of several states that reduced the duration of benefits following the Great Recession, cut its maximum weekly benefit from $535 to $350 in 2013. And the true value of any weekly check is effectively reduced if the recipient lives in a high-cost city. – Bloomberg
The flat pre-tax $600 per week payment tremendously benefited folks in 67% of all US cities.
Due to higher living costs, the weekly lifeline is less effective in 34% of all cities.
An example of this compares Morgantown, West Virginia—a relatively cheap place to live with prices 10% below the national average—to the Portland area in Oregon, which has slightly above-average living costs. The gap between wages in the two cities is about 25%. Before the $600 check arrived, Morgantown’s median-wage unemployed workers received a price-adjusted $118 less per week in regular benefits than their Portland counterparts. But since then, Morgantown workers have received a cost-adjusted benefit of $1,096 versus Portland’s $1,124. Their benefit gap shrank from 28% to less than 3%. – Bloomberg
“With payments now expiring, workers in states with low maximum benefit amounts will suffer the biggest shock,” Bloomberg warns.
As the $600 weekly payment expires Friday – and likely, the dollar amount of the next round of checks won’t be as great as before, this means MSAs that experienced the largest artificial boost of consumption, such as towns like Morgantown, well, those areas may soon experience a consumption collapse.