February 18, 2021

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

The outbreak of COVID-19 has been 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, 104 million claims have been filed.

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 their unemployment programs by offering benefits to those who previously were not eligible, extending insurance payments beyond the regular 26 weeks, and providing an additional $600 in benefits per week through July. The remaining provisions of the CARES Act expired at the end of last year, but the Consolidated Appropriations Act, 2021, which was enacted on December 27, 2020, restores those enhancements in lower amounts. The current legislation added $300 to weekly benefits, continued the expanded eligibility for benefits, and extended payments by 11 weeks.

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

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The expiration of the additional $600 per week at the end of July 2020 as well as the exhaustion of benefits for some workers who lost their jobs at the beginning of the pandemic brought spending for unemployment compensation down considerably even before the rest of the CARES Act provisions ended. However, payments remain high relative to historical levels and has started to rise again as the latest COVID-19 relief legislation continues the expanded unemployment provisions.

Federal spending on unemployment benefits rises during recessions

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The unemployment insurance 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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