Finance News

Unemployment advantages are under the minimal wage in lots of international locations

Carlos Ponce joins other protesters who take part in a protest calling on Senators to support the continuation of unemployment benefits on July 16, 2020 in Miami Springs, Florida.

Joe Raedle | Getty Images

Many states pay unemployment benefits to workers who are below the federal minimum wage.

This can mean that low-income families can pay their bills when many no longer receive federal unemployment benefits and there are few jobs. Workers with existing health conditions may also be afraid of returning to work due to the risk of Covid-19 infection or unable to find work due to childcare obligations.

In six states – Alabama, Arizona, Florida, Louisiana, Mississippi, and Tennessee – the biggest benefit an employee can hope for is below the $ 7.25 hourly minimum wage, according to CNBC analysis.

"Unfortunately insufficient"

"Regular unemployment insurance benefits in the US are absolutely inadequate in some states," said Peter Ganong, an economist and assistant professor at the University of Chicago.

These maximum levels of unemployment benefits are set by state lawmakers and, according to labor economists, are not fully tied to the cost of living.

Mississippi has the lowest power cap of any state – $ 235 per week. This equates to an hourly wage of $ 5.88 for a full-time employee.

More from Personal Finance:
She only gets $ 33 a week of unemployment benefits. Trump's $ 300 boost isn't coming.
Don't let these social security myths bother you
5 things you should know about payroll tax deferral

States can pay a minimum wage for workers that exceeds the federal minimum of $ 7.25 an hour.

21 states – including Alabama, Louisiana, Mississippi and Tennessee – are not setting a higher minimum wage, according to the US Department of Labor.

Arizona, for example, costs $ 12 an hour. But the state's unemployment system pays the equivalent of $ 6 an hour at the high end – or half the state's minimum wage.

Meanwhile, some of the highest-paying states offer benefits as high as $ 18 to $ 20 an hour. In Massachusetts, individuals can make up to $ 31 an hour, depending on how many loved ones they have.

Low benefit amounts are more important in states with higher relative costs of living like Arizona and Florida than in states like Mississippi, which tend to be cheaper, Ganong said.

And while many states adjust their benefit caps for inflation, some don't. For example, Florida has had a maximum unemployment benefit of $ 275 per week for more than two decades. (That's $ 6.88 an hour for a full-time worker.)

In July, the average person was receiving unemployment benefits below the federal minimum wage in 22 states, according to CNBC analysis. They ranged from the equivalent of $ 4.52 an hour in Louisiana to $ 7.15 in Wisconsin.

(The analysis is based on a 40-hour full-time workweek. Part-time workers can also receive unemployment benefits, which is likely to lower the national average.)

Event and entertainment workers gather in Las Vegas, Nevada on August 19th to raise awareness of their jobs and unemployment.


According to Julia Lane, an economist and professor at New York University, groups will have different views on the lack of unemployment benefits compared to the state and federal minimum wages.

On the one hand, some will say that paying higher levels of benefits is a negative incentive to work. Others believe that higher benefits are now essential as many workers have lost their jobs through no fault of their own due to the pandemic.

According to the Bureau of Labor Statistics, there are about three unemployed per job offer.

"And you may have different answers depending on whether it's an 18-year-old child living with their parents or a single mother of three who has no other support," Lane said. "So it's not an absolute."

Unemployment increased by $ 600

A weekly $ 600 supplement to state unemployment benefits helped many to offset any loss of income that began around early April. However, that subsidy, enacted by the CARES Act, a federal law to combat coronavirus, expired in late July.

That leaves millions of Americans only their state-assigned benefits for more than a month.

According to a recent analysis by University of Chicago economists, government benefits replaced about half of lost wages for the typical unemployed from April through July.

The $ 600 weekly increase increased the "wage replacement rate" to 150% over the period – an increase that had an oversized effect on low-wage workers who "have borne the brunt of this recession so far," said Ganong.

"That's why the $ 600 a week was such a big deal – if you're in one of the poorer states, it's way better than (state) unemployment benefits," Lane said.

The Trump administration launched a Lost Wage Assistance Program in early August to provide unemployed workers with an additional $ 300 per week. (Some states pay an additional $ 100 per week for a total of $ 400.)

However, only a handful have started making these payments. It will take many states a few more weeks to begin sending the subsidy. The program funding is estimated at just five weeks of award. Thousands of workers are also ineligible due to program restrictions.

Related Articles