October 22, 2020

The Coronavirus Has Led to a Surge in Spending on Unemployment Compensation

The outbreak of COVID-19 has become both a public health and an economic crisis. In particular, the closure of many businesses has resulted in an unprecedented surge in unemployment claims in the United States. Since late March, 84 million people have applied for benefits.

Through the unemployment insurance program, the government provides temporary payments to workers who have been laid off from work. Beneficiaries normally must also meet certain eligibility criteria, such as actively seeking a job, but many states have changed or waived the requirements for those who are unable to work due to the pandemic.

As a social safety net program that provides benefits to jobless individuals, the unemployment insurance program is designed to grow significantly during economic downturns. Such growth occurred during and immediately after the Great Recession, when federal outlays on unemployment benefits tripled from 2008 to 2010. Spending grew significantly faster when the coronavirus pandemic began — outlays for unemployment insurance were nearly 25 times larger at its peak in June 2020 than they were just three months prior. In addition to the rapid rise in the number of people filing for unemployment benefits, legislation enacted to provide economic relief also boosted spending. In particular, the Coronavirus, Aid, Relief, and Economic Security Act (CARES Act) provided states with the option to expand the unemployment program by offering benefits to those who previously were not eligible, providing an additional $600 in benefits per week, and extending insurance payments beyond the regular 26 weeks.

Federal spending on unemployment benefits has risen drastically in the past month

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At the end of July, the Federal Pandemic Unemployment Compensation program, which provided an additional $600 per week to beneficiaries, expired. As a result, spending for unemployment benefits has declined in subsequent months, though such spending remains historically high.

Federal spending on unemployment benefits rises during recessions

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Even as the economy begins to recover, spending on unemployment insurance is likely to continue at an unusually high level. This program and its temporary provisions are an essential part of helping American workers during the economic downturn. As the crisis continues, policymakers should not only plan for an effective recovery but also understand how the policy response will impact America’s longer-term fiscal outlook.


Related: The Coronavirus Pandemic Has Caused a Massive Increase in Claims for Unemployment Insurance


Image credit: Photo by Joe Raedle/Getty Images

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