Five Facts on Enhanced Pandemic Unemployment Benefits
The Big Insight: The expanded federal unemployment benefits in the March 2020 CARES Act are at least partly responsible for higher unemployment.
The March 2020 Coronavirus Aid, Relief, and Economic Security Act (CARES Act) created the Federal Pandemic Unemployment Compensation program to provide an additional $600 per week to individuals collecting regular unemployment compensation from their state as well as Pandemic Unemployment Assistance for those not qualified for regular unemployment compensation.
Here are five facts on the emerging data about the impact of this benefit on unemployment.
1. In states where enhanced unemployment benefits ended earlier, the flow of unemployed workers returning to work increased quickly.
A paper published by the National Bureau of Economic Research highlighted “a fairly sharp increase” in transitions from unemployment to employment of about 60% in the 18 states that eliminated the enhanced benefits, compared with a four percent decrease in those that did not end them.
2. Some economists argue that a total elimination of the enhanced benefits last summer would have lowered the national unemployment rate last year.
In that NBER paper, Harry J. Holzer, R. Glenn Hubbard, and Michael R. Strain conclude that “national unemployment rate in each of July and August would have been around 0.3 percentage point lower than they were…had all states ended [Federal Pandemic Unemployment Compensation] and [Pandemic Unemployment Assistance] in June.”
3. A majority of those who lost work during the pandemic said in November that they are not aggressively seeking new employment.
A U.S. Chamber of Commerce poll found that “more than half (53%) of Americans who became unemployed during the pandemic say they are either somewhat active, not very active, or are not active at all in looking for work. Just under half (47%, up from 32% in May) report that they are strongly active in their job search.”
4. Many low-wage workers experienced no decrease in their weekly income while receiving enhanced unemployment benefits, and some saw an increase.
Michael D. Farren and Christopher M. Kaiser of the Mercatus Center at George Mason University write, “The federal expansions to UI [unemployment insurance] might have reduced the likelihood that people returned to work because unconditional monetary grants to unemployed workers tend to raise their reservation wage — the compensation level necessary for a worker to take a job.”
5. In 2020, federal pandemic unemployment aid cost taxpayers $384 billion, exceeding the original Congressional Budget Office projection of $262 billion.
Claims data show that the cost of the $600 supplements paid to Pandemic Unemployment Assistance recipients was considerably higher than what CBO projected.
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