Joblessness Remains at Historic Levels and There Is No Evidence UI Is Disincentivizing Work

Last week 2.3 million workers applied for unemployment insurance (UI) benefits. This is the 18th week in a row that unemployment claims have been more than twice the worst week of the Great Recession. Many headlines this morning are saying there were 1.4 million UI claims last week, but that's not the right number to use. For one, it ignores Pandemic Unemployment Assistance (PUA), the federal program for workers who are not eligible for regular UI, like the self-employed. It also uses seasonally adjusted data for regular state UI, which is distorted right now because of the way the Department of Labor (DOL) does seasonal adjustments.

Of the 2.3 million workers who applied for UI last week, 1.37 million applied for regular state unemployment insurance (not seasonally adjusted), and 975,000 applied for PUA.

A disaster of Congress's making is looming for those who have lost their livelihoods during the global pandemic and are now depending on UI to provide for their families. If Congress doesn't act immediately, the across-the-board $600 increase in weekly unemployment benefits will expire at the end of this week. That would not just be cruel, it would be terrible economics. These benefits are supporting a huge amount of spending by people who would otherwise have to cut back dramatically. That spending is supporting more than 5 million jobs. If Congress kills the $600, they kill those jobs. This chart shows the number of jobs that will be lost in each state if the $600 is allowed to expire.

Many are talking about the potential work disincentive of the extra $600, since the additional payment means many people have higher income on unemployment insurance than they did from their prior job. The concern about the disincentive effect has been massively overblown. In May and June--with the $600 in place--7.5 million people went back to work. And, about 70% of likely UI recipients who returned to work were making more on UI than their prior wage. Concerns about the work disincentive simply ignore the realities of the labor market for working people, who will be very unlikely to turn down a job for a temporary boost in benefits--particularly when it is now clear that jobs are going to be scarce for a very long time. Further, there are 14 million more unemployed workers than job openings, meaning millions will remain jobless no matter what they do. Cutting off the $600 cannot incentivize people to get jobs that aren't there. Even further, many people are simply unable to take a job right now because it's not safe for them or their family, or because they have care responsibilities as a result of the coronavirus. Cutting off the $600 cannot incentivize them to get jobs, it will just cause pain. If policymakers insist on ignoring the evidence and worrying about the theoretical work disincentive of the $600, they should address their concern by letting people keep some of their UI when they go back to work--not by cutting off the $600, which is keeping the economy afloat.

Cutting off the $600 will also exacerbate racial inequality. Due to the impact of historic and current systemic racism, Black and Brown communities are suffering more from this pandemic, and have less wealth to fall back on. They will take a much bigger hit if the $600 expires. This is particularly true for Black and Brown women and their families, because in this recession, these women have seen the largest job losses of all.

And Congress needs to act immediately. If they let the extra payments expire and then reinstate them, it will be a needless administrative nightmare for state agencies, and recipients--who will face a lapse in benefits several weeks in most states--will pay the price. It may already be too late in many states.

Figure B combines the most recent data on both continuing claims and initial claims to get a measure of the total number of people "on" unemployment benefits as of July 18. DOL numbers indicate that right now, 34.3 million workers are either on unemployment benefits, have been approved and are waiting for benefits, or have applied recently and are waiting to get approved. But caution, Figure B provides an "upper bound" on the number of people receiving the $600, for three reasons (unfortunately we only know the magnitude of the first one): 1. It includes initial claims, which represent people who have not yet made it through the first round of processing; 2. Some individuals may be being counted twice. Regular state UI and PUA claims should be non-overlapping--that is how DOL has directed state agencies to report them--but some states may be misreporting; 3. Some states are likely including some back weeks in their continuing PUA claims, which would also lead to double counting (the discussion around Figure 3 in this paper covers this issue well).