Key Provision in COVID-19 Stimulus Would Boost Unemployment Benefits By $115 Billion for 11+ Million Workers

The COVID-19 pandemic is already wreaking havoc in the United States, with more than 50,000 people testing positive for the disease and millions forced out of work because of orders to practice social distancing. Goldman Sachs estimates that as many as 14 million Americans may lose their jobs as a result of direct closure of businesses and the drastic loss in economic activity reverberates throughout the economy. New unemployment claims in states such as Pennsylvania are up nine times normal levels. Economists are predicting as many as a record 3 million claims will be reported on Thursday, more than four times the previous record of 695,000, set in October 1982. All indicators are that this will be the most severe increase in joblessness in the nation’s history.

With so many workers filing for unemployment benefits, one of the most powerful ways to help those impacted by COVID-19 is to increase the amount of unemployment insurance checks.

This brief includes new research on the extent of job losses likely, and how the special increase in unemployment benefits delivered by the CARES Act—Pandemic Unemployment Compensation—will provide billions of dollars in assistance that will buoy families and the economy during the unprecedented COVID-19 crisis.

Immediate Unemployment Challenges Addressed by the CARES Act—And the Work to Come

Unemployment benefit payments currently replace only an average of 45 percent of previous earnings, for a weekly average of $382 per week. Unemployment pay is even lower for the millions of low-wage workers such as retail salespersons who earn $468 per week and would only qualify for $234 in unemployment benefits in most states. The system is designed for a normal labor market when jobless workers can find a new job. That’s virtually impossible during this pandemic for the one in four Americans living under a stay-at-home order or obeying social distancing policies.

The widespread unemployment caused by the COVID-19 pandemic threatens to unleash immediate hardships on families struggling to pay their bills and meet their basic needs, as most working families don’t have more than $400 saved for a rainy day. Unemployment benefits have been proven to reduce hunger, maintain housing, and preserve their savings. Every dollar of unemployment benefits delivers $1.87 in economic punch, as spending by jobless workers spreads through the economy, and robust benefits will not only help the economy through immediate spending on basic needs, but also will preserve the spending power of consumers when they get back to work. Moreover, temporarily paying workers to “#stayhome” could help slow the spread of the virus to a point that our health care facilities won’t be overwhelmed.

Congress is hearing the message, and is including significant increases in unemployment benefits in the bi-partisan CARES Act, which Senator Chuck Schumer has described as “unemployment insurance on steroids,” and which is expected to clear both houses of Congress this week. It provides the following new unemployment benefits:

• Federal Pandemic Unemployment Compensation: The proposed CARES Act negotiated by bipartisan leaders in the early hours of March 25 includes a $600-per-week boost to regular state unemployment benefits for claims through July 31, 2020. This is a major increase that will get most workers to, or near, 100 percent of their pre-layoff wage. For example, a worker who was making $1,100 a week in New York City currently can get a maximum state unemployment benefit of only $435 per week. With the new program, they would get an additional $600 of federal pandemic unemployment compensation, for a total of $1,035—nearly 100 percent wage replacement. This $600 per week represents a major boost in benefits and will ensure that most workers on unemployment don’t experience an economic catastrophe during what is anticipated to be the most acute phase of COVID-19 crisis.
• Pandemic Unemployment Assistance: The CARES ACT also would create a special Pandemic Unemployment Assistance (PUA) program that would provide benefits to those not eligible for regular state unemployment benefits and who are out of work because of the COVID-19 crisis. The reasons covered include that a worker’s place of business is closed due to COVID-19, they are diagnosed or seeking a diagnosis of COVID-19 due to symptoms, or they are taking care of an ill family member or a child whose school is closed. PUA will guarantee coverage for those in the gig economy, and other self-employed workers who cannot work because of COVID-19. Moreover, the PUA program would cover those who recently started a job but did not earn enough to qualify for UI and those who were scheduled to commence a job but cannot because of the crisis. PUA recipients would receive the same amount as they would receive under Disaster Unemployment Benefits (which cannot be less than half the state’s average) plus an additional $600 per week.
• Extension of benefits: The CARES Act would further provide an additional thirteen weeks of benefits for those who are collecting regular state unemployment benefits now, and run out of their twenty-six weeks of regular state benefits later this year. As long as they run out of state benefits before December 31, 2020, they will receive the thirteen-week extension. This ensure that workers displaced from jobs this month to COVID-19 can count of income through the end of the year.
• Full federal funding for work-sharing benefits: Work-sharing benefits allow companies to reduce work hours for their staff but keep them on full payroll, and maintain their health and retirement benefits. Normally, these benefits are paid out of state trust funds, which charge back the benefits to employers. The CARES ACT would fully federally reimburse states for these expenses, which would encourage more employers to establish them and encourage more states to enact such programs, which are currently in only twenty-eight states.

The CARES Act represents a major step forward for jobless families facing hardship this year. Certainly, the bill could have gone farther. The Take Responsibility for Workers and Families Act, introduced by House Democrats on March 23, 2020, would provide significant extra benefits for new entrants to the labor market, such as college students and other new workers who won’t be able to find a job but don’t have enough work history to qualify for regular benefits. And, the CARES Act did not fix the fundamental flaws in the underlying unemployment insurance program, including states, such as Florida, that currently offer just twelve weeks of benefits, a fix that was included in a new comprehensive unemployment insurance proposal by Senator Michael Bennett. Still, the CARES Act offers significant assistance to people out of work because of COVID-19.

Estimated Economic Impact of the CARES Act $600 Per Week Pandemic Unemployment Compensation

To estimate the value of the CARES Act, we created an economic model of job losses based on different macroeconomic scenarios, including the industrial composition of states and their exposure to COVID-19.

We assumed that unemployment insurance recipiency would average 64 percent in coming months (the national average of expected state recipiency rates, given historical experiences and the unique nature of COVID-19). We anticipate that the rate will be higher than the normal average during typical downturns, when at least some workers forego UI to look for jobs without assistance and when there are tighter eligibility restrictions on benefits.¹ As a result, we predict that if 7 million workers lost their jobs, there would be a 4.5 million increase in unemployment insurance recipients.² These increases are in addition to the baseline of 1.3 million unemployment recipients in the first quarter, before the effects of the pandemic.

The proposed $600 weekly UI supplement would more than double the current amount of benefits provided, assuming that the bill passes as drafted and guarantees the same $600 per week supplement to all COVID-19 displaced workers. It would have an incremental cost of $15.2 billion per month in the 7–million-job-loss scenario, and an incremental cost of $28.7 billion in the 15-million-job-loss scenario. Given the four months of benefits expected to be approved by Congress this week, we can expect the CARES Act to deliver between $61 billion and $115 billion in new benefits between now and July 31, 2020. The maps below display the fifty state estimates for the 7-million- and 15-million-job-loss scenario. Because of their large population and the major impact of COVID-19, California and New York would experience the largest benefit from the proposed stimulus—gaining as much as $18 billion over four months and $9.2 billion respectively. The smallest impact is in Wyoming—a less-populated rural state, projected to have a smaller COVID-19 impact—which would only gain $116 million in benefits. These estimates do not include all aspects of the CARES Act, just the $600 increase.

MAP. Projected State-by-State Job Losses Due to COVID-19 (High-end scenario)

map. Increase in Number of Workers Receiving Unemployment Benefits Due to COVID-19 Displacement, by State

MAP. Increase in Unemployment Benefits Due to $600 Weekly Supplement, by State

Estimated Job Loss by Sector and State

The nature of the COVID-19-related economic impact is considerably different from the pattern seen in recessions. Usually, the early stages of recessions are characterized by sharp reductions in manufacturing and construction along with diminished business-to-business purchases as inventories are drawn down. These job and income losses then result in reduced consumer sales, which in turn lead to further reductions in worker hours and layoffs. The economic impact can be severe and long lasting, but it builds over time, as interconnected parts of the economy begin to slump or contract. For example, the closure of offices can lead to decrease demand for dry cleaning which then leads to a decrease in demand for dry cleaning products.

In contrast, the current COVID-19-related economic downturn resulted from immediate efforts to protect the public health, as thousands of businesses in large cities were ordered to close to minimize the potential for further spread of the highly contagious virus. The impact was a rapid shuttering of businesses in a range of consumer service industries, such as restaurants, hotels, tourist-related businesses, performing arts and museums, neighborhood retailing, and services.

We modeled the expected job losses by sector and state, both to identify which states would be hardest hit, and to estimate the likely increases in unemployment recipiency and the incremental increase in unemployment benefits, including the current proposal for a $600 per week supplemental unemployment benefit.

Based on the sectors affected by mandatory public-health-related closings in large cities and early reports on an unprecedented spike in initial unemployment claims, we believe a plausible range for the COVID-19-related job displacement to be in a range from 7 million to 15 million. The peak-to-trough job decline during the Great Recession of 2008–09 was 8.7 million, a reduction that was concentrated in the period from August 2008 to spring 2009. In contrast, the immediacy of the mandated closings announced in mid-March have led to much steeper and more widespread job losses. It is likely that the job losses in New York City alone—now the U.S. epicenter for the pandemic—will range as high as 750,000 by the end of March.

To reflect the fact that the COVID-19 pandemic is most prevalent in large, dense cities, we assigned each of the fifty states to one of three categories, depending on its degree of urbanization—the share of the population living in urban areas. Sector-specific job losses were assumed to be greater for more urbanized states such as New York, Massachusetts, California, Texas, and Florida.

The maps show the expected job losses for each state, and indicates the share of total private jobs expected to be lost. We measure the intensity of COVID-19-related job loss as the ratio of the share of job displacement to each state’s share of all private sector employment. Table 1 indicates the fifteen states hardest hit—led by high tourist states including Nevada, Hawaii, the District of Columbia, and Florida. The states affected the least by COVID-19-related economic impacts are Iowa, Arkansas, North Dakota, Oklahoma, and Maine.

table 1

Under the 7-million-job-loss scenario, our estimates show that leisure and hospitality would be the sector hardest hit, with a 2.5 million job reduction—nearly 16 percent of all jobs in that sector, accounting for over one-third of the overall nationwide losses. Leisure and hospitality includes restaurants and bars, hotels, performing arts, museums, and sports and recreation. Trade and transportation would see a decline of 2.1 million jobs, accounting for about 30 percent of the total, and the sector is inclusive of retail locations and airlines, and other transport services. The sector accounting for the next greatest job loss would be employment services and janitorial and other business services that are part of professional and business services. Table 2 shows the job losses by sector for both the 7 million and the 15 million projections.

table 2

Acknowledgment

Michele Mattingly provided research assistance. She is a doctoral candidate in economics at the University of Massachusetts at Amherst.

Methodology

Baseline unemployment insurance recipiency and benefit levels are from actual Q4 2019 levels. Displaced jobs allocated across industries by likelihood of mandatory closings (for example, restaurants, nonessential businesses, transportation and arts-related). For COVID-19-related job displacements, 64 percent average UI recipiency assumed. Recipiency varies by state, depending on peak month since 2018, and adjustments were made for higher expected recipiency in the current crisis. State UI benefit levels determined using May 2018 Occupational Employment Statistics state and sector-specific average wage levels and 2018 state wage replacement rates. States grouped into three categories based on degree of urbanization to estimate exposure to coronavirus-related job displacement by sector. Baseline private employment and sector levels shown in Appendix tables are from the May 2018 OES series.

Click Here for Full Appendix Data Set

Header photo: A man makes deliveries near Wall Street as people stay away from the area due to the coronavirus in New York City. Source: Spencer Platt/Getty Images

1. The estimates take each state’s peak unemployment insurance recipiency rates (which is measured against total unemployment from the monthly household survey) and add an additional 10–25 percent, given the unique and sudden nature of COVID-19 and the state’s characteristics and previous history. The state recipiency rates range from 51 percent in the case of South Dakota to 81 percent for Massachusetts and the weighted average of them is 64 percent.
2. Overall, we project that the loss of 7 million jobs would translate into $9 billion in regular monthly unemployment benefits, and 15 million lost jobs lost would mean $19 billion in regular monthly benefits before the CARES Act increase takes effect. Most of those dislocated by the mandated shutdowns are low-wage workers. Lower wages mean their unemployment benefits would be lower than the average. However, with job displacement being concentrated in more urbanized states, some of which provide higher-than average benefits, overall we would expect a higher average weekly unemployment payment than for the workers receiving unemployment as of the end of 2019.

Tags: unemployment rate, unemployment benefits, coronavirus, covid-19