How to lure back California workers making more on unemployment than they did on the job

(FILES) In this file photo a woman wearing a facemask enters a building where the Employment Development Department has its offices in Los Angeles, California on May 4, 2020, past a posted sign mentioning the closure of the offices's public access counters due to the coronavirus pandemic. - More than 20.2 million US private sector jobs were destroyed in April, and that almost certainly underestimates the damage from the efforts to contain the coronavirus, payrolls firm ADP said May 6, 2020. More than 16 million jobs were eliminated in the services sector, half of those in leisure and hospitality. (Photo by Frederic J. BROWN / AFP) (Photo by FREDERIC J. BROWN/AFP via Getty Images)

As employers plan to ramp up or reopen, some are realizing that low- to middle-wage workers might not want to be called back because they are making more money on unemployment than they did working, thanks to the extra $600 per week everyone on unemployment is getting from April through the end of July from the federal government under the Cares Act.

A handful of Republican senators, including South Carolina’s Lindsey Graham, threatened to hold up the Cares Act, saying that giving people more than 100% of their wages could create “a strong incentive for employees to be laid off instead of going to work.” They all ended up voting for the bill.

Dr. S. William Chang has an ophthalmology practice in Modesto. Because he stopped seeing patients except for emergencies, his business fell by about 60%. A couple of technicians left earlier this year, but he still had to reduce two technicians from 35 to 20 hours a week. One of them, he said, is collecting $80 a week of regular unemployment, plus $600 in federal benefits, for a total of $680. Her regular salary is about $22 an hour.

Before the pandemic, she was making about $770 a week, but now with her 20 hours of work plus unemployment she’s making $1,120 or 45% more. The other technician, who earns about the same salary, has also applied for benefits.

A technician who left at the end of March filed for unemployment. He was making $18 an hour for 30 hours a week or about $540. Chang is not sure how much, if any, unemployment he might get, but if it’s around $250 a week plus $600, he’d be getting $850 a week not working until July 31.

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Now his business is coming back and “in two or three weeks I’ll probably need more help,” he said. But the “rescue package is so generous I’m afraid my employees are better off staying unemployed,” at least through July.

House Speaker Nancy Pelosi, D-San Francisco, puts on her scarf after signing the Paycheck Protection Program and Health Care Enhancement Act last month. The loan program’s rehiring requirements, along with generous unemployment benefits, have put some business owners in a bind.

Many small businesses who received loans from the federal Paycheck Protection Program, including Chang, need to hire back staff within eight weeks of funding to get the loans forgiven. But so many are finding employees reluctant to return that the U.S. Treasury Department added this question to its FAQs on Wednesday:

“Will a borrower’s PPP loan forgiveness amount be reduced if the borrower laid off an employee, offered to rehire the same employee, but the employee declined the offer?” The answer is no. It said it will issue a rule excluding laid-off employees whom the borrower offered to rehire (for the same salary and number of hours) from the Cares Act’s loan forgiveness reduction calculation. “To qualify for this exception, the borrower must have made a good faith, written offer of rehire, and the employee’s rejection of that offer must be documented by the borrower. Employees and employers should be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation.”

The $600 payment works out to $15 an hour for a 40-hour week. Self-employed people who lost work as a result of the coronavirus are also receiving $600 on top of their pandemic unemployment benefits, which in California range from $167 to $450 a week. Unemployment benefits, including the $600, are taxable for federal but not California income taxes.

When added to the average unemployment benefit nationwide, $600 was meant to replace 100% of the average worker’s wage. But that means people making more than the average wage could get more than they previously earned — and those below the average wage get less.

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Whether it should be extended has become a hot topic in Washington. On April 29, Graham said he and Republican Sen. Tim Scott would allow an extension “over our dead bodies.”

Josh Bivens and Heidi Shierholz of the Economic Policy Institute wrote that the extra $600 “has been by far the most effective part our economic policy response to the coronavirus shock.” It would have been better to cap the benefit at 100% of pre-crisis wages “up to a quite generous maximum benefit,” but “decades of disinvestment in the administrative capacity” of state unemployment offices left them incapable of calculating a flexible amount with a 100% replacement rate.

The $600 is “direct relief precisely to people who need it the most,” Shierholz said in an interview. And because they need it the most, “it will get funneled right back into the economy.” It’s where “the economy and humanity totally intersect.”

Maurice Emsellem of the National Employment Law Project said the $600 is especially important in California. The state’s maximum unemployment benefit, $450 a week, hasn’t changed since 2005. The average benefit, $338 a week, is below the national average of $378.

To give unemployed people enough to buy necessities without discouraging work, unemployment should replace at least half of the average weekly wage, with a maximum benefit equal to two-thirds of the average wage, according to a federal advisory council report.

“Our average $338 benefit replaces only 25% of the average weekly wage,” which was $1,340 in last year’s second quarter, Emsellem said. The average weekly benefit plus $600 is $938, or 70% of average. “That’s barely where the federal commission says you should be in normal times,” Emsellem says. “Now we are in a crisis situation. The $600 is critically important to keeping the economy going and keeping low-income people afloat.”

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Dr. S. William Chang, an ophthalmologist with a practice in Modesto, wears a mask in a photo he provided. He says some of his laid-off workers are making more on unemployment than they did while working.

To maintain benefits, every two weeks unemployed people must fill out a certification that asks if they looked for work, were able to work and refused any work. The Employment Development Department temporarily suspended the certification requirement from March 14 through Saturday to ease strain on its computer system. It indefinitely suspended the job search requirement because of the coronavirus.

Unemployed people who turn down “suitable” work lose their unemployment benefits. However, a job could be unsuitable if there are health and safety concerns. “We would say, and I hope EDD would agree,” that older and immune-compromised workers “should not be denied unemployment” if they reject a job for valid health reasons.

EDD said it is developing guidance on this issue.

Shierholz said she hopes Congress will extend the $600 past July. With the national unemployment rate hitting almost 15% in April, “the hand-wringing over some people getting more than they should is stunning,” Shierholz said. Her best guess is that Congress extends it, but for less than $600.

To help employers and employees, Congress could say, “Come back to work, and you can keep part of” your unemployment, said Jim Paulsen, chief investment strategist with the Leuthold Group.

Sung Won Sohn, an economic professor at Loyola Marymount University, said he would phase it out after July 31, but give states funding to increase unemployment benefits in a way that meets their individual needs.

Kathleen Pender is a San Francisco Chronicle columnist. Email: Twitter: @kathpender

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