When Unemployment Insurance Benefits are Rolled Back: Impacts on Job Finding and the Recipients of the Pandemic Unemployment Assistance Program
11 Pages Posted: 5 Aug 2021
Date Written: July 29, 2021
In response to the COVID-19 pandemic, Congress expanded unemployment insurance (UI) benefits in three ways. First, it increased the level of benefits through a $600 and then a $300 per week supplement. Second, it expanded the pool of workers who are eligible to receive UI via the Pandemic Unemployment Assistance (PUA) program. Third, it extended the duration of benefits. As the labor market recovers from the COVID-19 recession, policymakers and economists have debated whether generous UI benefits are holding workers back from returning to work.
All of these program expansions are scheduled to expire in September 2021. Beginning in May 2021, twenty-six states announced they would end these benefits early at the end of June 2021. These expirations will dramatically change the level of benefits workers receive. Whereas typical UI benefits replace roughly 50 percent of a worker’s wages, with the $300 supplement almost half of jobless workers (48 percent) receive as much or more in UI benefits than their prior wages (Ganong et al. 2020). Additionally, the PUA program has accounted for roughly 40 percent of total UI claims during the pandemic.1 These benefits have been economically important insofar as they have boosted the spending of jobless workers (Greig et al. 2021).
This brief aims to answer two important policy questions central to this debate. First, to what extent have the UI supplements discouraged jobless workers from returning to work? We find evidence of a small job search disincentive from the supplements. Second, how well targeted and timely are PUA benefits in insuring against income losses? We find that PUA is successfully targeting income supports to more marginalized workers, specifically younger and lower-income workers. In addition, PUA recipients experience income losses roughly similar to the losses experienced by UI recipients. However, there were significant delays in PUA payments as states administered this new program. A program like PUA may be an increasingly important macroeconomic stabilizer, especially if, during a future recession, payments are delivered more quickly than was the case during the COVID-19 recession. We summarize our key findings in this insight and describe our methodology in more detail in a companion technical note (see Ganong et al. 2021a).
Keywords: Unemployment insurance, unemployment insurance supplements, pandemic unemployment assistance program, disincentive effects, return to work
JEL Classification: J65, J23, I38, E21, E24, H31
Suggested Citation: Suggested Citation