If12143 Covid Ui Benefits Impact
Summary
A Congressional Research Service product, IF12143, dated June 24, 2022, titled How Did COVID-19 Unemployment Insurance Benefits Impact Consumer Spending and Employment? It describes the pandemic unemployment insurance measures Congress enacted: Federal Pandemic Unemployment Compensation (FPUC), Pandemic Emergency Unemployment Compensation (PEUC) and Pandemic Unemployment Assistance (PUA). It reports that FPUC payments totaled $442.3 billion and PUA payments totaled $131.2 billion. The report reviews research finding that the benefits supported household consumption and that their disincentive effects on work were smaller than expected. It closes with a list of references and is prepared by two CRS specialists in income security.
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June 24, 2022
How Did COVID-19 Unemployment Insurance Benefits Impact
Consumer Spending and Employment?
The COVID-19 pandemic dramatically disrupted the PUA uniquely expanded the population eligible for UI
economy with mass layoffs and business closures. The to include the self-employed, gig workers, and others
economy was shocked with stay-at-home and shutdown not previously eligible for UI or those unable to work
orders designed to limit person-to-person contact. These for certain COVID-19-related reasons. PUA payments
restrictions on the flow of labor and commerce reduced totaled $131.2 billion.
economic demand. They also increased the number of
workers unable to work. Additionally, the increased Research on the COVID-19 UI Benefits
workplace hazards created by the COVID-19 pandemic An emerging research literature leverages new and rich
further limited certain jobseekers’ options for employment, sources of data to examine both (1) the role that COVID-19
creating unusual shifts in the labor market. Congress UI benefits—particularly FPUC and PUA—played in
recognized the potential threat that such massive earnings boosting spending and consumption in U.S. households that
losses posed to the national and global economy and experienced unemployment and (2) whether the
responded by augmenting the joint federal-state supplemental UI benefits decreased the likelihood that
Unemployment Insurance (UI) system to maintain the unemployed workers found work.
economy, among many other measures that provided
income support. Recent studies have examined the impact A strength of recent studies is their use of new sources of
of these UI expansions on consumer spending and data to evaluate UI impacts, particularly on personal
employment. consumption patterns. Measuring the personal consumption
response to government programs is traditionally
UI Benefits During the Pandemic challenging. Data on consumption are scarce and often
Congress enacted key changes in the UI system in response contain significant measurement error, which makes
to the high levels of unemployment resulting from the statistical inference difficult and imprecise. The research
COVID-19 pandemic and recession (February 2020 through discussed below, however, benefits from new proprietary
March 2020). Typically, the UI system provides income data sources that harness anonymized bank account and
support to unemployed workers through weekly benefit lending data to provide weekly information on income,
payments. UI payments help (1) provide temporary partial spending, and employment. Additionally, the research uses
wage replacement to involuntarily unemployed workers and another new source of household level data: the Household
(2) stabilize the economy during recessions. Permanent-law Pulse Survey, an experimental weekly survey conducted by
UI programs—Unemployment Compensation (UC) and the Census Bureau in collaboration with several federal
Extended Benefits (EB)—automatically respond to layoffs agencies that includes information on individuals’
and business closures. However, unprecedented job loss employment status, spending patterns, food security,
during the COVID-19 pandemic prompted Congress to housing, physical and mental health, access to health care,
enact a series of extraordinary measures: Federal Pandemic and application for and receipt of benefits. Some studies of
Unemployment Compensation (FPUC), Pandemic employment effects are also strengthened by the ability to
Emergency Unemployment Compensation (PEUC), and analyze job applications to an online jobs platform.
Pandemic Unemployment Assistance (PUA).
However, research findings related to the impact of the
These UI measures helped to maintain consumer spending COVID-19 UI benefits may not be generalizable to other
and stabilize the economy during this period. PEUC was periods or labor market conditions. The COVID-19
similar to congressional actions taken in previous recession was created by an abrupt, exogenous shock
recessions as it extended the availability of regular UC attributed to public health and safety concerns rather than a
benefits (available for up to 26 weeks) for up to an series of economic stresses, which are associated with a
additional 49 weeks. However, two of these interventions, more typical recession. Additionally, the federal response to
FPUC and PUA, were unprecedented when compared to the pandemic included several other forms of assistance to
responses during previous recessions. employers and employees—such as the Payment Protection
Program, the Employee Retention Tax Credit, and
FPUC provided a weekly supplement on top of all UI Economic Impact Payments to households—that may also
benefits. FPUC provided a $600 weekly supplement
have affected personal consumption and the incentives for
between April and July 2020 and was reauthorized at employment. COVID-19-specific factors, such as the
$300 weekly from January 2021 through the beginning availability (or scarcity) of vaccines, childcare, and in-
of September 2021. FPUC payments from April 2020
person school, may have also contributed to unusual
through September 6, 2021, totaled $442.3 billion.
patterns in returning to work during this period.
https://crsreports.congress.gov
How Did COVID-19 Unemployment Insurance Benefits Impact Consumer Spending and Employment?
Consumer Spending and COVID-19 UI Payments While the recent research studies did find that the expanded
One of the primary objectives of UI is to alleviate the UI benefits had disincentive effects on working, the impact
hardships that result from loss of wages during was smaller than expected when compared to estimates
unemployment. Typically, UI benefits replace up to 50% of based upon models from prior recessions and non-
previous earnings, temporarily supporting workers’ basic recessionary periods. Marinescu et al. (2021) reported that
needs, but UI benefit recipients’ expenditures are often although the weekly $600 FPUC substantially decreased
lower than when they were employed. Without UI, the applications to an online jobs platform, labor demand was
unemployed are more likely to report that they are unusually depressed, and thus FPUC had little impact on
experiencing food and housing insecurity and are more employment levels. Similarly, Ganong et al. (2021), using
likely to exhaust personal savings, sell assets, draw upon bank account data, found a smaller negative impact on
retirement savings, and further reduce expenditures. Using employment than expected. They observed that a high level
a range of data sources, recent studies indicate that COVID- of employees being recalled to work by their former
19 UI payments played a key role in supporting employers helped reduce the disincentive effects of the
consumption and general economic security of households. $600 FPUC payment on employment. Furthermore, they
found that after the $600 payments ended, most individuals
Using Household Pulse Survey data, Carey et al. (2021) did not exit unemployment despite a precipitous drop in
found that unemployed individuals who did not receive UI their weekly income, suggesting that other factors were
benefits were more likely (than those who received UI) to impeding employment. Coombs et al. (2021) found that it
report food insecurity, housing insecurity, and difficulty in was the termination of the underlying UI benefit rather than
meeting household expenses. A working paper by Ganong the loss of the $300 FPUC payment that increased the
et al. (2021) using bank account data found that once likelihood of reemployment. Greig et al. (2021) found that
COVID-19 UI payments were deposited into workers’ PUA recipients were younger, had lower income, and were
accounts, spending immediately rebounded at or above pre- more likely to have worked in non-traditional jobs or self-
unemployment levels (a result that is in contrast to employment but had similar reemployment responses to
generally suppressed consumption patterns in previous those receiving regular UC benefits.
recessions). Holzer et al. (2021) found that, in states that
terminated FPUC and PUA early, the unemployed were References
five percentage points more likely to report difficulty CRS Report R46687, Unemployment Insurance (UI)
paying for expenses than in states that continued the Benefits: Permanent-Law Programs and the COVID-19
benefits. Similarly, Coombs et al. (2021) used payday loan Pandemic Response.
data to examine consumption patterns of low-income Carey, Patrick et al. “Applying for and Receiving
individuals who were receiving COVID-19 UI benefits
Unemployment Insurance Benefits During the Coronavirus
immediately before early state terminations of these Pandemic.” Monthly Labor Review (September 2021).
benefits. These researchers found that the loss of benefits
led to an average 20% reduction in consumption. Coombs, Kyle et al. “Early Withdrawal of Pandemic
Unemployment Insurance: Effects on Earnings,
UI and Disincentives to Work Employment and Consumption.” Harvard Business School,
The timing, generosity, and duration of UI benefits can Working Paper (August 2021).
influence job search behavior of the unemployed. There is Ganong, Peter et al. “Spending and Job Search Impacts of
existing evidence that higher benefit levels and lower Expanded Unemployment Benefits: Evidence from
thresholds for benefit eligibility can cause recipients to be Administrative Micro Data.” Becker Friedman Institute,
less willing to accept a job (and thus increase spells of Working Paper (February 2021).
unemployment). However, previous economic research Ganong, Peter et al. “US Unemployment Insurance
generally found that the employment disincentive effect of Replacement Rates During the Pandemic.” Journal of
UI during recessionary periods is relatively small, as job Public Economics, vol. 191, no. 104273 (September 2020).
openings are limited; thus, UI income is not a particularly
large contributor to high unemployment rates. Greig, Fiona et al. “When Unemployment Insurance
Benefits are Rolled Back: Impacts on Job Finding and the
During the COVID-19 pandemic response, weekly UI Recipients of the Pandemic Unemployment Assistance
benefits often provided significantly higher levels of Program.” JPMorgan Chase & Co. Institute (July 2021).
income replacement compared to previous recessions. Holzer, Harry J. et al. “Did Pandemic Unemployment
Ganong et al. (2020) estimated that from April to July 2020, Benefits Reduce Unemployment? Evidence From Early
the combination of the $600 weekly FPUC supplement plus State-Level Expirations in June 2021.” NBER, Working
the regular UI payment replaced more than 100% of pre- Paper no. 29575, December 2021.
pandemic earnings for more than 75% of UI beneficiaries. Marinescu, Ioana et al. “The Impact of the Federal
The estimated replacement rate for workers receiving the Pandemic Unemployment Compensation on Job Search and
$600 FPUC varied significantly, with a median replacement Vacancy Creation.” NBER, Working Paper no. 28567,
rate of 145% and a median replacement rate of over 300% March 2021.
for UI beneficiaries with the lowest 10% of earnings. These
changes (if implemented during a typical recession) would Julie M. Whittaker, Specialist in Income Security
have been expected to substantially dampen the incentive Katelin P. Isaacs, Specialist in Income Security
for workers to find employment.
IF12143
https://crsreports.congress.gov
How Did COVID-19 Unemployment Insurance Benefits Impact Consumer Spending and Employment?
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