Unemployment insurance claims remain historically high: Congress must reinstate the extra $600 immediately
Last week 1.6 million workers applied for unemployment insurance (UI) benefits. Breaking that down: 984,000 applied for regular state unemployment insurance (not seasonally adjusted), and 656,000 applied for Pandemic Unemployment Assistance (PUA). Some headlines this morning are saying there were 1.2 million UI claims last week, but that’s not the right number to use. For one, it ignores PUA, the federal program that is serving millions of workers who are not eligible for regular UI, like the self-employed. It also uses seasonally adjusted data, which is distorted right now because of the way Department of Labor (DOL) does seasonal adjustments.
Republicans in the Senate allowed the across-the-board $600 increase in weekly UI benefits to expire. Last week is the first week of unemployment in this pandemic that recipients will not get the extra $600 payment. That means people on UI benefits who lost their job during a global pandemic are now are forced to get by on around 40% of their pre-virus earnings, causing enormous pain.
Republicans in the Senate are proposing to (essentially) replace the $600 with a $200 weekly payment. That $400 cut in benefits is not just cruel, it’s terrible economics. These benefits are supporting a huge amount of spending by people who would otherwise have to cut back dramatically. The spending made possible by the $400 that the Senate wants to cut is supporting 3.4 million jobs. If you cut the $400, you cut those jobs. The map in Figure A shows the number of jobs that will be lost in each state if the extra $600 unemployment benefit is cut to $200.
If the weekly unemployment insurance increase is cut by $400, how many jobs will it cost over the next year?: Jobs cost as a level and as a share of employment
|State||Jobs cost||Jobs cost, as a share of employment|
Notes: We take the relationship between the unemployment rate and the boost to personal income from the extra $600 payment that held in May of 2020 and assume it falls to $200 beginning August. We apply a multiplier of 1.5 to the personal income decline provided by cutting back on the enhanced UI benefit. We then divide this boost by overall GDP, and apply the resulting percentage change to the average level of employment in the first quarter of 2020 to get an implied employment reduction. The numbers in the chart are the average reductions to personal income, GDP, and employment between the third quarter of 2020 and the second quarter of 2021. Some quarters would see even larger effects.
Source: Author’s analysis based on data from the National Income and Product Accounts (NIPA) data from the Bureau of Economic Analysis (BEA), projections from the Congressional Budget Office (CBO), data on continuing unemployment insurance claims from the Department of Labor (DOL), and total nonfarm employment from the Bureau of Labor Statistics (BLS) Current Employment Statistics (CES).
The Trump administration has floated the alternative idea of dropping the $600 to $400. First, the administration can’t do anything in this space without Congress. Further, dropping the $600 to $400 would still cost 1.7 million jobs. Because we did not put the public health measures in place necessary to successfully reopen, the coronavirus has spiked, and the jobs gains we saw in May and June have stalled, if not reversed. Now is not the time to cut benefits that are supporting jobs.
But what about the potential work disincentive of the extra $600? After all, the additional payment means many people have higher income on unemployment insurance than they did from their prior job. It turns out that the concern about the disincentive effect has been massively overblown. In fact, rigorous empirical studies show that any theoretical disincentive effect has been so minor that it cannot even be detected. For example, a study by Yale economists found no evidence that recipients of more generous benefits were less likely to return to work. A case in point: In May and June—with the $600 in place—7.5 million people went back to work. And about 70% of likely UI recipients who returned to work were making more on UI than their prior wage. Further, there are 14 million more unemployed workers than job openings, meaning millions will remain jobless no matter what they do. Slashing the $600 cannot incentivize people to get jobs that are not there. Even further, many people are simply unable to take a job right now because it’s not safe for them or their family, or because they have care responsibilities as a result of the virus. Slashing the $600 cannot incentivize them to get jobs, it will just cause hardship.
Slashing the $600 will also exacerbate racial inequality. Due to the impact of historic and current systemic racism, Black and brown communities are suffering more from this pandemic, and have less wealth to fall back on. They will take a much bigger hit if the $600 is cut. This is particularly true for Black and brown women and their families, because in this recession, these women have seen the largest job losses of all.
Figure B combines the most recent data on both continuing claims and initial claims to get a measure of the total number of people “on” unemployment benefits as of August 1. DOL numbers indicate that right now, 33 million workers are either on unemployment benefits, have been approved and are waiting for benefits, or have applied recently and are waiting to get approved. But importantly, Figure B provides an upper bound on the number of people “on” UI, for two reasons: (1) Some individuals may be being counted twice. Regular state UI and PUA claims should be nonoverlapping—that is how DOL has directed state agencies to report them—but some individuals may be erroneously counted as being in both programs. (2) Some states are likely including some back weeks in their continuing PUA claims, which would also lead to double-counting (the discussion around Figure 3 in this paper covers this issue well).
DOL reports that 33.0 million workers are either on unemployment benefits or have applied and are waiting to see if they will get benefits: August 1, 2020
|Regular state UI: Continued claims||Regular state UI: Initial claims||PUA: Continued claims||PUA: Initial claims||Other programs (mostly PEUC and STC)||Total|
Notes: This is an upper bound on the number of people “on” UI, for two reasons: (1) regular state UI and PUA claims should be nonoverlapping—that is how DOL has directed agencies to report them—but some individuals may be erroneously counted as being in both programs; (2) some states are likely including some back weeks in their continuing PUA claims, which would also lead to double-counting.
This is an upper bound on the number of people “on” UI, for two reasons: (1) regular state UI and PUA claims should be nonoverlapping—that is how DOL has directed agencies to report them—but some individuals may be erroneously counted as being in both programs; (2) some states are likely including some back weeks in their continuing PUA claims, which would also lead to double-counting. Non-seasonally-adjusted data are used throughout. Regular state UI continued claims are for the week ending July 25; regular state UI initial claims are for the week ending August 1. PUA continued claims are for the week ending July 11; PUA initial claims are for the weeks ending July 25 and August 1. “Other programs” are continued claims in other programs for the week ending July 18. Pandemic Unemployment Assistance (PUA) is the federal program for workers who are out of work because of the virus but who are not eligible for regular state unemployment insurance (UI) benefits (e.g. the self-employed). “Other programs” includes PEUC, STC, and others; a full list can be found in the bottom panel of the table on page 4 at this link: https://www.dol.gov/ui/data.pdf.
Source: Department of Labor (DOL) Unemployment Insurance Weekly Claims (News Release), retrieved from DOL, https://www.dol.gov/ui/data.pdf, August 6, 2020.
Figure C shows continuing claims in all programs over time (the latest data are for July 11). Continuing claims are nearly 30 million above where they were a year ago. However, the above caveat about potential double-counting applies here, too, which means the trends over time should be interpreted with caution.
Continuing unemployment claims in all programs: January 4, 2020–July 18, 2020
|Regular state UI||PUA||Other programs (mostly PEUC and STC)|
Notes: Pandemic Unemployment Assistance (PUA) is the federal program for workers who are out of work because of the virus but who are not eligible for regular state unemployment insurance benefits (e.g., the self-employed). “Other programs” includes PEUC, STC, and others; a full list can be found in the bottom panel of the table on page 4 at this link: https://www.dol.gov/ui/data.pdf.
It is also worth noting that last week was the 20th week in a row that initial unemployment claims have been more than 1.7 times the worst week of the Great Recession. If you restrict this comparison just to regular state claims—because we didn’t have PUA in the Great Recession—last week was still the 20th week in a row that initial claims have been greater than the worst week of the Great Recession.