Large income losses loom for many workers when Pandemic Unemployment Compensation expires

As of this writing in July 2020, only four months have passed since the COVID-19 pandemic began to wreak economic havoc in the U.S. The speed and severity of the current recession are unprecedented: nearly 17 million fewer Americans were employed in June 2020 than in February 2020.¹ But one of the core elements of the policy response to this economic pain—Pandemic Unemployment Compensation (PUC), the $600 boost to weekly unemployment insurance (UI) benefits—is currently slated to expire on July 31.² Who will experience the consequences of this decision to withdraw aid? Our analysis of U.S. Department of Labor and Census Bureau data shows that the young and those in occupations like food preparation—e.g., cooks, bartenders, and food servers—are disproportionately represented among current UI recipients and will experience disproportionately large income reductions if PUC expires as scheduled.

A staggering increase

Policymakers have responded quickly to the ongoing recession, providing a range of supports for businesses, individuals, and families. One of the most important such supports came in the form of a dramatic expansion in the eligibility for and generosity of UI. While in the past, UI only replaced 30–55 percent of job seekers’ previous earnings, it now adds a flat $600 to recipients’ weekly checks on top of the previous benefit, and is available to millions more workers than would typically be permitted to access it. The staggering increase in UI recipiency shown in Figure 1 reflects both this enhanced eligibility and (to a much larger degree) the labor market disruption caused by the pandemic, which far exceeds that of the Great Recession in 2008–2009.³

However, when it enacted these policies in response to mass joblessness, Congress did not tie the UI expansion to economic conditions. Instead, it chose to let the $600 PUC increase expire on July 31 and the expanded eligibility to expire on December 31. The former, in particular, has led to concern that the abrupt withdrawal of benefits will generate hardship for recipients, their families, and the broader economy (as fiscal stimulus is withdrawn and consumer spending is reduced).

Young workers, food preparation workers disproportionately likely to experience benefit reductions

If PUC expires at the end of July as currently scheduled,⁴ who will experience the benefit reductions? Figure 2 compares the age distribution of both the national labor force (represented by the gold bars) and those receiving UI benefits (represented by the dark blue bars), showing that younger workers—those age 16 to 34—are disproportionately likely to receive UI.⁵ That is, they can be found in the May 2020 UI rolls at a higher rate than they exist in the national labor force.⁶ For example, 25–34-year-old workers made up 26.4 percent of continued claims in May 2020—that is, 4.9 million recipients of regular UI benefits—but only 22.7 percent of the labor force.⁷ If enhanced UI benefits expire as scheduled at the end of July, these demographic groups will accordingly experience a disproportionate reduction in their incomes.

To further illuminate which population will be affected by PUC expiration, Figure 3 shows the occupational composition of unemployment claims, adjusting for each occupation’s share of the labor force.⁸ A number above 1 indicates that members of an occupation constitute a larger share of total UI claims than their share of the labor force.⁹ Here, patterns in the Ninth Federal Reserve District are contrasted with those of the U.S. as a whole, revealing some stark differences both across occupations and across regions. In both the Ninth District and the U.S. as a whole, food preparation and personal care workers have been especially hard hit by the recession, while those in management, business and financial operations, and the sciences are underrepresented in the UI rolls.

Looking at the Ninth District specifically, it’s striking that food preparation and health care workers have been harder hit than their counterparts throughout the U.S. (Due to data being available only at the state level, we only include the four states that lie entirely within the Ninth District—Minnesota, Montana, North Dakota, and South Dakota—and exclude Michigan and Wisconsin.)

Scheduled PUC expiration will result in large income losses

If the $600 add-on to UI expires on July 31, recipients stand to collectively lose very large sums of money. This is immediately apparent when one simply multiplies that add-on by the current number of recipients—including recipients of regular UI, Pandemic Extended Unemployment Compensation (PEUC), Pandemic Unemployment Assistance (PUA), and Short-Time Compensation (STC). For the Ninth District, this amounts to more than $350 million per week, and for the country as a whole, nearly $19 billion per week—or $260 million and $10.5 billion, respectively, counting only regular UI recipients. (As noted in footnote 3, there is uncertainty about the actual number of PUA claims currently being paid each week, such that the higher values may prove to be overestimates.)

We can look a bit deeper by examining how much different groups stand to lose if the $600 PUC benefit expires at the end of July. Looking by occupation, for example, the UI claims data can be used to calculate these losses if we make some additional assumptions. In May 2020, food preparation workers made up nearly 17 percent of regular UI recipients in the U.S. (for whom information on occupation was available). If this share held constant until the July 31 expiration; if it were applied to PUA, PEUC, and STC recipients; and if the June 13 number of total continued claims remained constant; the loss of the $600 add-on would mean a total loss of $3.1 billion per week in benefits for food preparation workers (or $1.8 billion, counting only regular UI recipients).¹⁰ In addition, the 6 percent of UI recipients who are health care workers would lose almost $1.2 billion (or $650 million, counting only regular UI recipients).

To the extent that these UI income losses generate hardship for families, they will impair their financial positions and potentially degrade their ability to service debt. Previous analysis shows that, despite the recession, holders of auto and credit card debt in the Ninth District are continuing to make payments.¹¹ Without PUC benefits, it will become more difficult for many families to do so.

The fact that workers—especially those who are younger and in vulnerable occupations—will suffer income declines when PUC expires does not imply that PUC should be maintained in its current form indefinitely. But it is an important consideration for policymakers as they decide how to phase out PUC and other CARES (Coronavirus Aid, Relief, and Economic Security) Act provisions. One appealing approach is to tie phase-out directly to economic conditions, so that support is maintained (and in the right amount) until labor market conditions improve sufficiently.¹² Regardless, it is important to be aware of and prepared for the income declines that will accompany the expiration of recent UI policy supports.

Author’s note: I am grateful to Charles Golding and Tyler Boesch for excellent research assistance and John Coglianese, David Ratner, and Federal Reserve Bank of Minneapolis colleagues for insightful feedback on an earlier draft.

Endnotes

1 This amounted to a 6.5 percentage point decline in the seasonally adjusted employment rate—well above the 4.7 percentage point decline observed from employment peak to trough during the 2008–2009 Great Recession.

2 More precisely, PUC is available for weeks of unemployment ending on or before July 31.

3 Reported Pandemic Unemployment Assistance (PUA) continued claims may be an overestimate—perhaps a substantial one—of actual PUA recipiency, given that some states appear to be reporting a separate continued claim for each week of PUA backlogged claims that they process in a given week.

4 The fast-moving nature of this recession makes predictions difficult, even when they focus on a date only a few weeks in the future. But to the extent that continued UI claims on August 1, 2020, exist in the same number and composition as in May 2020, the calculations in this article will be accurate.

5 Due to data limitations, only regular state UI claims are used for these calculations. If recipients of PUA were included, the distributions of UI recipients shown here and in other figures would be different. In particular, PUA is more likely to be received (on average) by lower-earning individuals than regular UI.

6 Only small differences exist between the age distributions of UI recipients in the Ninth Federal Reserve District and the U.S. as a whole (result not shown).

7 Because the extraordinary circumstances of the current recession make it preferable to use non-seasonally adjusted continued claims, I also report non-seasonally adjusted labor force estimates.

8 Specifically, a given occupation’s share of regular claims in May 2020 is divided by the occupation’s share of the labor force in the same month.

9 Occupation is not observable for the small minority of the unemployed who have just entered the labor force.

10 We apply the May 2020 continued claim shares by occupation to the number of continued claims—regular, PEUC, PUA, and STC—reported by the U.S. Department of Labor for the week ending June 13, 2020.

11 Mortgage delinquency rates have risen, but much of this increase is likely due to forbearance programs.

12 The unemployment rate is typically looked to as a core indicator for this purpose, as it is a key variable for understanding the ease of finding employment.