Unemployment and COVID-19

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As the coronavirus pandemic hit the U.S. economy, over ten million Americans filed for unemployment insurance.

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Over 6.6 million workers applied for unemployment benefits last week—the highest number of initial jobless claims on record in American history. The previous record had been set just two weeks ago with 3.3 million unemployed Americans filing claims. In just three weeks, the number of initial unemployment insurance (UI) claims increased by more than 3,000% as businesses closed to slow the spread of the coronavirus and layoffs accelerated. Yesterday, the U.S. Department of Labor released employment numbers from March that show the overall unemployment rate as having increased to 4.4%—even prior to the job losses occurring in the last two weeks.

In response to the latest unemployment numbers, U.S. Senate Minority Leader Chuck Schumer (D-N.Y.) called on the U.S. Department of Labor to “move heaven and earth” to implement—quickly—the expanded unemployment benefits Congress passed last week as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). 

Meanwhile, state unemployment websites across the country, but particularly in Florida and New York, are crashing as states struggle to handle the surge of jobless claims. At least for now, it appears that the flood will continue for the foreseeable future. Experts estimate that nearly 20 million people will likely be laid off or furloughed by July.

Background on Employment Policy

  • The Federal-State Unemployment Insurance Program provides temporary unemployment benefits to eligible unemployed workers. Although federal law provides broad requirements, because each state administers its own program, requirements for eligibility and program administration vary across state lines. In addition, state laws determine how to calculate the amount of money an eligible recipient receives, how long a recipient can receive benefits, and the amount of taxes owed for the program. The Labor Department publishes an annual comparison of state unemployment laws. The most recent edition reflects the provisions of state law as of January 1, 2019. The Department announced expanded flexibility and new guidance for states on how to administer unemployment benefits for workers affected by COVID-19 on March 12, 2020. 
  • In a Wharton Public Policy Initiative brief, Cary Coglianese of the University of Pennsylvania Law School highlights findings from a series of empirical studies on the connection between regulation and unemployment. Although policy makers have pointed to regulation as a “job killer,” existing empirical research, Coglianese explains, “reveals a more complex relationship between regulation and jobs.” Moreover, the empirical research “fails to support the notion that regulation is either a major job killer or a significant job creator.” 
  • With COVID-19 spreading across the United States, the Congressional Research Service prepared an overview of existing federal and state government social insurance programs as well as options that could be implemented to provide financial assistance for those unable to work.

Policy Responses to the COVID Crisis

  • The CARES Act—the third legislative package responding to the coronavirus crisis—provides an estimated $260 billion in enhanced and expanded UI. The CARES Act temporarily supplements UI benefit amounts and extends the duration of those benefits, providing an additional 13 weeks of state UI benefits. It also provides unemployment assistance to workers who are not typically eligible for regular state UI or who have exhausted their state UI benefits, among other enhancements. The Labor Department provided states with the first of several guidance letters to states on the UI provisions of the CARES Act. For helpful explanations on the UI provisions of the CARES Act, see here or here.
  • A Bipartisan Policy Center and the Committee for Economic Development of the Conference Board policy brief explains the unemployment compensation provisions included in the CARES Act specifically for child care providers. 
  • An American Enterprise Institute report by Michael R. Strain provides information about the Paycheck Protection Program, established by the CARES Act, which offers “forgivable loans” to small businesses.
  • The COVID-19 pandemic is “supercharging a debate about the treatment of gig workers,” argues Wired’s Aarian Marshall. Although the CARES Act provides some short-term relief to workers in the gig economy, some workers are concerned that the relief will not come fast enough, Marshall reports. 
  • Other countries have created an economic environment that encourages “businesses to keep employees on their payrolls rather than giving them a pink slip,” writes John Cassidy in The New Yorker. Cassidy identifies several proposals intended to prevent businesses from closing and avoid mass layoffs in the U.S., but is it too late already for businesses that have been shuttered by the pandemic? 
  • Approximately 70 million American families are likely to have to wait at least another four weeks, or more, for their stimulus payments from the CARES Act, according to Aaron Klein of the Brookings Institution. In addition, the payment will come in a paper check, which will likely create more delays.

Unemployment in Times of Crisis

  • The COVID-19 pandemic will be “especially punishing for low-income workers, just as they were starting to reverse a generation of widening inequality,” Derek Thompson argues in an op-ed in The Atlantic. The shutdown of “face-to-face services” and the “leisure economy,” Thompson suggests, is pushing workers with the “fewest labor protections” into unemployment. These workers will bear a disproportionate burden of the socioeconomic shift to mitigate the spread of the novel coronavirus, Thompson predicts.
  • Although the government has used unemployment compensation to address past economic crises, in this case, the government must “insure workers against the risk of earnings loss” while also encouraging “unemployed workers to maintain a safe social distance from others,” argues the Brookings Institution’s Gary Burtless. In a recent report, Burtless compares past UI policies to those passed in the recent stimulus package and highlights how “the new law increases weekly unemployment insurance benefits by 20 times as much as was done in the 2009 stimulus package.” Burtless claims this increased benefit will bolster the economy and slow coronavirus transmission by allowing unemployed people to continue spending without having to hunt for a job and risk spreading the coronavirus—at least for now.
  • In a recent Economics for Inclusive Prosperity policy brief, Arindrajit Dube of the University of Massachusetts Amherst proposes several changes that can be made to the unemployment system to protect workers and businesses during the COVID-19 pandemic. First, Dube argues that eligibility requirements should be reduced, payments should be higher, and benefits should last for longer periods of time. The most important requirements to drop are the one-week waiting period between filing for benefits and receiving payment and the requirement that people seeking unemployment be “actively searching” for work, Dube suggests. Dube also argues for allowing self-employed workers and workers in the gig economy to qualify for unemployment benefits. Second, Dube says that the government should create incentives for businesses to furlough workers rather than lay them off. Finally, Dube argues that all of the funding for these initiatives should come from the federal government through the Emergency Unemployment Compensation program. 
  • Gabriel Chodorow-Reich of Harvard University and John Coglianese of the Federal Reserve show that the UI system can be modified to play a greater role in macroeconomic stabilization during a recession. In their Brookings Institution report, Chodorow-Reich and Coglianese explain that UI helps society not only by providing “a cushion for individuals experiencing a period of joblessness” but also by increasing overall expenditures to help boost a slow economy. To “enhance the potency” of this stabilizing effect, they make five recommendations, including expanding UI eligibility, providing federally-financed extended benefits, and doing away with so-called look-back provisions, in which past unemployment rates affect state eligibility for extended benefits. Although these reforms would help optimize UI for macroeconomic stabilization, Chodorow-Reich and Coglianese stress that factors such as unemployment duration could limit the overall potency of any changes.