How Are We Recovering? (Part 3)
Now that we’ve discussed unemployment insurance (UI) in general and in connection with the Great Recession, it’s time to analyze UI in relation to the COVID-19 pandemic. As we all know, the federal government substantially increased unemployment cash benefits and broadened eligibility. Many people couldn’t go to work and many businesses couldn’t operate, leading to our national unemployment rate peaking at 14.8 percent back in April 2020.
The CARES Act made several large changes to the unemployment insurance system. These changes were intended to be temporary and preserve family and small business finances during the period of greatest uncertainty. Specifically, the CARES Act extended the duration of unemployment benefits, added a $600 weekly supplement to the usual state benefit amount, expanded eligibility to gig workers and many others traditionally excluded from the unemployment insurance system, and introduced other modifications such as the waiving of job search requirements to account for the unique circumstances of the pandemic. At the end of 2020, the federal government extended into March the supplemental benefit amount at a lower level of $300, and President Biden’s American Rescue Plan extended these enhanced benefits further until September 2021.
These changes to the unemployment system have undoubtedly had major effects on individuals and the economy. The additional $600 was certainly beneficial for the financial situation of the unemployed; researchers have found that additional benefits from the CARES Act resulted in 76 percent of unemployed people earning more than their previous wages on unemployment between April and July. In Missouri, the median replacement rate of UI benefits (including the $600) to lost wage earnings was 154 percent, meaning those on unemployment made 54 percent more than their lost wages. Even with these extra earnings, research has found that unemployment benefits did not harm job growth in spring and summer 2020 when lockdown restrictions made job search very difficult.
However, conditions have changed. Most businesses are open, vaccines are available to those who want them, and the unemployment rate has fallen from 14.8 percent to 6.1 percent. Are these extra unemployment benefits still necessary? Job openings hit a preliminary record high in March and anecdotally, many businesses are struggling to find workers. It’s certainly possible that the additional $300 and the long extension to September are causing people to push back their job search and extend their time receiving UI. Jobs will likely be even more abundant by the time benefits expire, thereby reducing the risk of a delayed job search.
It seems that the job market (and therefore our economic recovery) is being helped by vaccine access and business re-openings and hurt by extended unemployment benefits. However, we may be able to see the light at the end of this UI tunnel. Governor Parson announced that Missouri would end participation in the federal pandemic unemployment programs on June 12th, saying that these benefits were always meant to be temporary and it’s time to get people back to work. The federal government is also taking steps to return to pre-pandemic UI rules. Lawmakers seem to recognize that getting people back to work is a priority and enhanced UI benefits may not have been moving us toward that goal. Hopefully, these changes will help us continue to recover quickly.