CHICAGO — About a month after suit-maker Hart Schaffner & Marx furloughed its nearly 250 factory employees, the Des Plaines-based company called them all back to work, marshaling their talents to cut and sew face masks suddenly in high demand to protect against COVID-19.
But there was an unanticipated hurdle: Many employees were making more money on unemployment insurance than they did working. While unemployment benefits usually pay a fraction of a person’s regular wages — 47% in Illinois, up to a cap — people laid off or furloughed amid government-mandated shutdowns are getting an additional $600 per week through July.
Three-quarters of the factory workers, whose jobs on average pay above $15 an hour, voiced concerns about letting go of the extra cash, said Ken Ragland, chief operating officer at W Diamond Group, which manufactures the Hart Schaffner & Marx brand. In a difficult conversation, he told their union that those who didn’t return to work within 72 hours would lose their jobs — and also lose their unemployment benefits — unless they had a legitimate reason to stay home, such as child care constraints.
“I hated having to convey that message, but the union concurred,” said Ragland, whose overall workforce has shrunk to 260 from 292 pre-pandemic, as some workers remain furloughed and others lost their jobs for failure to return. “Them not coming back to work would have meant that the company would have been in much worse shape.”
As Illinois enters phase three of its reopening plan and more businesses resume operations, some employers worry they won’t be able to staff up if people are making more money staying home than they would returning to work. University of Chicago economists estimate that nationwide, about 68% of jobless workers can get more in unemployment benefits than they make while working.
That could hamper reopening efforts and slow an economic recovery. Some business owners also worry they’ll pile on debt if they can’t get loan forgiveness through the federal Paycheck Protection Program, which requires them to keep employees on payroll.
The concerns have reached Washington, where a proposal has surfaced to use federal dollars to pay people a bonus if they return to their jobs.
By law, people are disqualified from receiving unemployment benefits if they refuse to return to work when called back or decline an offer of a suitable job, and employers are encouraged to report such situations to the state. But many employers are reluctant to put their workers in that position.
“I can’t force them to come back. I’m not going to create a hostile environment,” said Catherine Crews, owner of Canine Crews, a dog day care and boarding facility with locations in Humboldt Park and River West.
Crews, who laid off 27 workers in March, called back five who were willing to return when she started to reopen this month.
“The majority of my employees are making more money than they’ve ever made by not working right now,” said Crews, who pays her hourly staff $14 to $17 an hour. “That’s the reality of it.”
The enhanced unemployment benefits, part of the $2.2 trillion relief package passed by Congress in late March, were intended to replace the full wages of people who lost their jobs as governments mandated business closures and urged people to stay home to slow the spread of the coronavirus. When it was determined old computer systems at state offices couldn’t handle calculating individual replacement pay, Congress agreed to a flat weekly $600 payment on top of state benefits. The figure was based on what it would take to fully replace the wages of the average unemployment recipient.
But the $600 bump more than made up for the lost wages of many workers, with 1 in 5 receiving twice as much in unemployment as they normally make, according to the U. of C. analysis.
In Illinois, a typical middle-income person who made $723 per week in gross wages while working receives $940 weekly in unemployment with the enhanced benefits, or 130% of his or her regular pay, according to the analysis. A low-income worker earning $438 per week when employed gets $806 weekly, or 184%, on unemployment. Meanwhile, higher earners are subject to a cap of $484 a week in state benefits, so someone who makes $1,287 weekly when employed would receive $1,084 when unemployed, or 88% of regular pay.
The extra $600 per week benefit is set to expire July 31. But with the economic fallout from the coronavirus continuing to drive mass unemployment, House Democrats this month voted to extend the additional payments through January 2021 as part of a $3 trillion rescue package. The extension faces an uphill battle in the Republican-controlled Senate.
Some Republican lawmakers instead want to offer a back-to-work bonus to incentivize people to take jobs as the economy reopens, with one proposal from Sen. Rob Portman, R-Ohio, suggesting workers get a temporary $450-per-week bonus on top of regular wages through July.
Despite worries that generous unemployment will discourage laid-off workers from getting back to work, some economists say the added benefits have been good for the economy by getting more money into the pockets of low- and moderate-wage workers.
“Without generous relief, these workers and their families would have had to run down meager savings and go into debt just to survive during the lockdown period,” wrote economists Josh Bivens and Heidi Shierholz of the left-leaning Economic Policy Institute. “Besides causing avoidable human misery, this would severely hamper spending — and, by extension, the overall economic recovery — when the public health all-clear is eventually sounded.”
Erik Hurst, an economics professor at the University of Chicago’s Booth School of Business, doubts people would risk losing their jobs long-term to earn the extra unemployment benefits, and in cases where that does happen he thinks businesses will have an easy time finding new workers.
Sam Shalaby, a 62-year-old technician who repairs machines at Hart Schaffner & Marx, was eager to return to work after a month on furlough because he was bored with the repetitive routine of working in the garage, cleaning the house and watching the news.
His unemployment benefits paid about the same amount as his usual paycheck, but he makes less now that he’s back at work because there are fewer opportunities for overtime.
Shalaby said he doesn’t blame the company for threatening to fire people if they didn’t return to work, as he wants the business to survive. The mission of making masks to help businesses protect their employees also is motivating to him.
“I am so happy for what I’m doing to help people, actually,” said Shalaby, who has worked at the company for 42 years.
The company is making washable triple-ply cloth masks that it sells in bulk at cost to customers including Uber, Union Pacific railroad and the Cook County sheriff’s office. It also started selling them directly to consumers.
Ragland says he hopes to start producing men’s clothing again by the end of June, but he expects to keep making masks with the unused factory capacity.
For businesses hoping PPP loans offer relief, failure to bring workers back on their payrolls could mean a portion of their loan won’t be forgiven. That could change if Congress approves a bipartisan proposal to eliminate a requirement that 75% of the forgivable loans be used for payroll and extend the window for when businesses must spend the money. The changes passed the House by a 417-1 vote Thursday. In the meantime, recent guidance from the Small Business Administration said employers can avoid reduction of their loan forgiveness by informing the state that a worker has rejected an offer to be rehired. But that puts employers in an awkward position.
Tom Jednorowicz, who owns a restaurant in Lincolnwood and three others downstate, said he doesn’t want to insist laid-off employees return to work to earn significantly less than they do on unemployment during a period there is nothing for them to do anyway.
“This isn’t their fault,” said Jednorowicz. “They work hard for their money and given the opportunity to provide extra money and extra savings, who am I to say that for the betterment of me I am going to force you to take my money right now?”
Jednorowicz was approved for $200,000 in PPP loans for each of his restaurants, but calculates only $60,000 will be forgivable because of staffing issues related not only to the higher unemployment benefits but also the timing of the loan requirements. Restaurants can’t open their dining rooms until late June at the earliest, and even then at diminished capacity because of social distancing requirements.
“There will be no problem finding employees when all of this is said and done because there will be so many closed businesses,” Jednorowicz said. “What I’m worried about is I’m not going to be able to afford them.”
Crews, the dog day care owner, said she received a PPP loan early this month and is “fairly certain I won’t have 100% forgiveness because I can’t get my employees back.”
She has opened one location for a limited number of dogs for day care, for which there is there demand because many clients are first responders still heading to work or people juggling both child care and jobs at home. But her dog walking and dog boarding sales have tanked, and she expects to lose $500,000 in annual revenue, or 46% of her total, as a result.
As part of the PPP process, she offered all of her employees their jobs back along with a letter detailing the risks and a questionnaire asking if they wished to return.
Among the five employees who agreed to come back immediately, three were not receiving unemployment benefits, one missed the dogs and another was a longtime employee who was moving into a leadership role. Just one worker had found a different job. Most people said they wanted to come back but not yet because of child care or safety concerns.
Crews feels the process is setting small-business owners up to fail.
“There are days you want to go into a primal scream,” she said.
