July 15, 2021

COVID-19 Has Caused a Surge in Spending on Unemployment Insurance

The outbreak of COVID-19 has been both a public health and an economic crisis. In particular, the closure of many businesses resulted in an unprecedented surge in unemployment claims in the United States. Though the labor market is recovering, the unemployment rate remains high relative to its pre-pandemic level.

Through the unemployment insurance program, the government provides temporary payments to workers who have been laid off from their jobs. Beneficiaries normally must meet certain eligibility criteria, such as actively seeking employment. Most states waived or changed the requirements at the onset of the pandemic, although a majority of them have since reinstated the work search requirement.

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 were restored in lower amounts by the Consolidated Appropriations Act and subsequently extended by the American Rescue Plan. The latest legislation adds $300 to weekly benefits, continues the expanded eligibility for benefits, and extends payments through September 6, 2021.

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

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The initial 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 monthly spending for unemployment compensation down considerably even before the rest of the CARES Act provisions ended. The American Rescue Plan extended the enhanced benefits, but many states have recently stopped providing the expanded federal unemployment programs, which will likely reduce monthly spending for unemployment benefits.

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 economy recovers from the pandemic, policymakers should work to 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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