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Regional Matters

February 1, 2021

Unemployment Benefits Under the New Stimulus Package

Introduction

On Dec. 28, 2020, the Coronavirus Response and Relief Supplemental Appropriations Act (CRRSA) was signed into law by then-President Donald Trump after strong bipartisan support in Congress. This bill was the second large stimulus bill passed since the beginning of the COVID-19 pandemic and extends many of the programs enacted in the CARES Act that was signed into law in late March 2020.

The CRRSA Act, which has a total price tag of $900 billion, includes direct support to households, small businesses, educational institutions, nursing homes, and child care facilities. In addition, the bill extends some provisions in the CARES Act, including eviction moratoriums, enhanced SNAP benefits, and the extension of two federal unemployment insurance (UI) programs. Additional funding for broadband, vaccines, and clean energy were also included.

The direct support to households comes in two forms: stimulus payments and enhanced/extended unemployment benefit programs. The Pandemic Unemployment Assistance (PUA) and the Pandemic Emergency Unemployment Compensation (PEUC) programs, created by the CARES Act, were set to expire after Dec. 31, 2020, and have now been extended through March 14, 2021. A previous Regional Matters post explained the programs and their use across the Fifth District. According to the Department of Labor, 8.5 million Americans filed a continued claim for PUA and 4.8 million Americans filed a continued claim for PEUC during the week ending Dec. 26, 2020. Without the extension of these programs, these benefits would have stopped at the end of 2020. State UI programs are also being used widely; during the week ending Dec 26, 2020, there was a total of 19.6 million continued claims filed for any of the UI programs (state, PUA, PEUC, etc.). This remains far higher than the 1.8 million continued claims filed in the same week in 2019.

State unemployment, PUA, and PEUC have proved to be important funding stopgaps for many Fifth District workers. The following chart shows weekly continued claims as a percent of covered employment since the beginning of the pandemic. This includes continued claims for state UI as well as PUA and PEUC. As of mid-December, this figure remained above 10 percent in most Fifth District geographies.

Changes to Unemployment Benefits in the Fifth District under the New Stimulus Bill

Overall, the CRRSA Act does not make significant changes to the UI programs established in the CARES Act, but it does include several important extensions to ensure that those receiving UI can continue to access the assistance. It also includes new oversight requirements intended to prevent fraud.

As mentioned, Congress extended both PUA and PEUC to March 14, 2021, with an option for those receiving benefits by that date to continue to do so through April 5, 2021, should they have remaining weeks of eligibility. The CRRSA Act increases the maximum number of weeks an individual can claim a combination of state and federal UI benefits from 39 weeks to 50 weeks, and the number of weeks an individual may claim through PEUC has been extended from 13 weeks to 24 weeks. The CRRSA Act also limits the retroactive payment of PUA benefits to claims filed after Dec. 1, 2020.

Notably, the CRRSA Act restored the Federal Pandemic Unemployment Compensation (FPUC) supplement for all state and federal UI recipients at an additional $300 per week, starting Dec. 26, 2020, and ending on March 14, 2021. This supplement, as discussed in an earlier Regional Matters post, was originally and somewhat controversially included in the CARES Act and provided a $600 weekly payment on top of existing state and federal UI payments. Congress lowered the supplementary payment in the CRRSA Act to reduce UI as an incentive for benefit recipients to stay out of the work force when suitable employment is available.

Congress also insisted on a number of provisions intended to root out fraudulent use of UI benefits. The CRRSA Act requires new applicants to submit documentation to demonstrate PUA eligibility. States are also required to verify the identity of PUA applicants. Finally, states must establish a method to address situations where applicants and recipients refuse to return to work without good cause, and it also requires applicants to be duly notified of applicable laws, including their right to refuse work that poses a risk to their health and safety. These oversight provisions helped to ensure broad support of the overall legislation on both sides of the aisle.

Policy Impact on Fifth District Workers

As with the UI supplement under the CARES Act, the additional $300 weekly benefit means that some workers will earn more on unemployment than they did while in the workforce. For example, anyone earning an hourly wage less than $12.27 in South Carolina will receive larger weekly payments on UI through mid-March 2021 (assuming a full-time, 40-hour work week).

The table below shows the wage at which individuals could earn more on UI than in employment in each Fifth District state and the District of Columbia. Any worker making less than the hourly wage in the table would earn more on UI than working at their current job.

State​Maximum Hourly Wage at which Individuals will Earn More on UI
District of Columbia$12.21
Maryland$13.97
North Carolina$12.09
South Carolina$12.62
Virginia$12.20
West Virginia$12.21

Under the CARES Act, the UI weekly supplement was $600/week, which meant that a worker in the Fifth District, on average, earning less than $24.32/hour received a higher effective wage on UI than they did in the workforce. Under the CRRSA Act, that figure is $12.65. With median wages ranging from $16.31 in West Virginia and $35.74 in the District of Columbia, no median wage worker in the Fifth District will be better off on UI—a marked change from 2020.

Food services workers typically receive a below-median wage, and in most places this sector has not returned to pre-COVID-19 levels of operations. Based on median wages in the sector, over 50 percent of Maryland, North Carolina, South Carolina, Virginia, and West Virginia’s food service workers who claim UI through mid-March 2021 will earn more on UI than they do while working. In the District of Columbia, even with the $300 supplement, most food service workers will not see an increase in their effective wage on UI.

Conclusion

After the original CARES Act was passed, there was considerable outcry from businesses and elected leaders that the $600/week UI supplement created disincentives for people to return to work. Through the CRRSA Act, Congress attempted to address those concerns by lowering the supplement to $300/week, while extending federal UI programs until mid-March, to help unemployed workers through this difficult economic period. The intent of the legislation was to provide support for workers in industries or firms that had to shut down due to COVID-19 without providing a disincentive to return to work. Nonetheless, some workers may still have a higher income by receiving UI benefits than through their normal employment. Many of those workers are in particularly hard-hit industries, like the food service and hospitality sectors.

As with all of the stimulus measures put in place by Congress in the last year, these extended and reinstated UI benefits have an end date, March 14, 2021, setting up another inflection point for Congress. Will this almost three-month extension be enough to help workers bridge the pandemic-led economic downturn? The incoming administration has already indicated that they do not think it will be and is proposing an extension of these emergency UI programs through September 2021, including an increase of the FPUC supplement from $300/week to $400/week. Considering the incoming administration will face extremely tight majorities in both the House and Senate, it may be a difficult task to convince bipartisan majorities to support expanded unemployment support if the labor market improves significantly over the next few months. However, if unemployment is still high and states are still facing restrictions and economic shutdowns, Congress will likely face pressure to further extend and expand UI to allow the economy additional time to recover, as they did in the aftermath of the Great Recession. Ultimately, the public health response and ongoing vaccination efforts will be the key factor determining if and when the labor market can start to permanently recover, and when these expanded unemployment programs will no longer be needed.

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Views expressed are those of the authors and do not necessarily reflect those of the Federal Reserve Bank of Richmond or the Federal Reserve System.

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