Unemployment Benefits Have Saved the US From Economic Calamity

They expire at the end of the month

Unemployment Benefits Have Saved the US From Economic Calamity

MIAMI SPRINGS, FLORIDA - JULY 16: Carlos Ponce joins other demonstrators participating in a protest asking Senators to support the continuation of unemployment benefits on July 16, 2020 in Miami Springs, Florida. The protesters were asking Senators to support the new Schumer/Wyden legislation that extends unemployment benefits for all laid-off Americans as the coronavirus pandemic continues to disrupt the economy. (Photo by Joe Raedle/Getty Images)

This post article appeared in Jacobin.

Because of the pandemic, the United States has enacted the most generous welfare state in our ungenerous history. Though limited in scope and time, the supplemental unemployment insurance benefits in the stimulus bill have seriously cushioned the blow of mass unemployment — which is why lots of employers and Republican politicians want the program to expire forever at the end of the month rather than see it renewed. Letting it lapse would be massively destructive.

Some mainstream pundits have gotten excited about signs of recovery over the last few months. Yes, the unemployment rate fell from its April high of 14.7 percent to 11.1 percent in June, but, April and May aside, that’s still higher than any month since May 1941. The broader “U-6” unemployment rate, which includes people who want full-time work but can only find part-time work and those who’ve given up the job search as hopeless, was 18 percent, also off from April’s high, but it was higher than at any point during the 2009 recession (see graph below). The modest recovery from the depths of April were largely the result of states reopening and workers being called back — but that’s driven the disease numbers back up, so these gains don’t look sustainable.

Unemployment rates in the United States between 1950 and 2020.

Job losses triggered steep declines in wage and salary incomes — if you average the April and May numbers, they were down 7 percent from a year earlier. (We won’t have the June numbers until the end of July.) That’s close to twice the losses at the worst point of the 2009 recession. But those losses were more than offset by the $1,200 payments and expanded unemployment benefits in the stimulus bill, officially known as the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Unemployment insurance (UI) benefits alone were up an almost incomprehensible 3,257 percent from a year earlier. As a result, despite the massive job loss, personal income rose over 9 percent in April and May from a year earlier.

At the beginning of July, there were 17.3 million people drawing unemployment benefits under traditional state programs, down from a peak of almost 25 million in May, but like nothing we’d ever seen before. (See graph below. The graph shows beneficiaries as a percentage of employment rather than absolute numbers to account for population growth over time.) The CARES Act also created a new class of pandemic unemployment insurance, available to freelancers and other workers not normally included in traditional programs. There were 14.3 million such beneficiaries, bringing the total to 31.6 million — nearly a tenth of the US population, or nearly a quarter of those still employed. As the second graph below shows, those numbers have not dropped at all. And, it should be emphasized, because so many state UI systems were antiquated and severely burdened, it’s taken people weeks to get benefits they’re entitled to.

Unemployment beneficiaries as a percentage of employment between 1967 and 2020.

Unemployment beneficiaries in millions by week in 2020.

Unemployment, as with everything in the United States, is not distributed equally. In June, state unemployment rates varied widely, from a low of 4.3 percent in Kentucky to 17.4 percent in Massachusetts, one of the states hit hardest by the initial wave of COVID-19 (see map below). The next two highest are New Jersey (16.6 percent) and New York (15.7 percent), also hard hit by the disease. Many of the lower-unemployment states were spared by the initial wave, but some are now suffering both rising caseloads and heightened economic distress. In Florida, new applications for UI nearly doubled between the weeks ending July 4 and July 11. Arizona, Arkansas, and Georgia also saw sharp jumps in caseloads and UI applications.

Unemployment rates by state in June 2020.

Despite claims that reopening the states would mitigate the economic damage, there seems to be little relationship between states’ speed to ease restrictions and their unemployment rates. Some of the aggressive early openers, like Florida and Arizona, were in the double digits (dark blue on the map). If you leave out the lightly hit states in the Heartland, there’s almost no relationship between opening status and joblessness. This state-level observation is confirmed by more geographically detailed work by Austan Goolsbee and Chad Syverson. Using cell phone data to track customer visits to retail and other business outlets, they found that stay-at-home orders had little effect on behavior, as did their repeal. People mostly stayed home because they were scared of getting sick, not because the “nanny state” was telling them to.

But if they weren’t going to the mall, they were shopping remotely, something made possible by payments authorized by the CARES Act. According to a near-real-time tracker of consumer spending assembled by the Opportunity Insights project, based on credit and debit card data, consumption collapsed in early March, stabilized just after the CARES Act became law, and began rising when the stimulus payments started (see graph below). The recovery was especially strong for people living in low-income zip codes; posher sorts seem more cautious, because they have that luxury. Spending has flattened since mid-June at levels just below what they were before the pandemic hit — those $1,200 checks don’t last long.

Consumer spending in 2020.

More long-lasting than those checks has been the $600 supplement to standard state unemployment benefits, which has helped 25 million Americans keep their noses above water. As a result, two-thirds of the unemployed have incomes higher than they did while working. In addition to making it easier for tens of millions to pay their bills, the expanded benefits have kept the economy from imploding.

We haven’t done as well as Western Europe; in May, the European Union’s average unemployment rate was 6.7 percent, half ours. Their job-preservation schemes were far more effective than ours — not to mention their COVID-19 containment. But things would have been far worse without these interventions.

But will they last? The expanded unemployment benefits are scheduled to expire at the end of July, and the White House and congressional Republicans don’t want to renew them in their current form. Though he’s itching to forgive the loans extended to businesses to keep employees on the payroll without bothering to check how recipients actually used the money, Treasury Secretary Steven Mnuchin says $600 checks for the unemployed are just too generous: “We’re going to make sure that we don’t pay people more money to stay home than go to work.” The top Republican legislative priority looks to be shielding businesses from lawsuits should people get sick from being forced back on the job.

If those benefits are allowed to expire or are renewed at a lower level, look out below. Even with them, food banks have been doing a record business. With COVID-19 caseloads rising in much of the country with little relief in sight, employers are preparing for a fresh round of firings. Dreams of a rapid recovery in the second half of this year have evaporated in all but the most delusional of minds. If unemployment benefits are cut, in addition to spreading mass sickness and death, there will be a fresh round of immiseration.

Doug Henwood

Doug Henwood edits Left Business Observer and is the host of Behind the News. His latest book is My Turn.