Unemployment insurance as a share of personal income spiked during the pandemic more than in other recessions. Time for UBI?
By: Juliana Kaplan,Madison Hoff
During the pandemic, the amount of income from unemployment benefits began to spike, making up a greater percentage of personal income than in the past 50 years.
Highlights:
- Unemployment insurance as a share of personal income spiked during the pandemic more than in other recessions.
- It shows the impact of expanded federal benefits and increased unemployment eligibility.
- But permanent reforms may be needed to ensure states’ UI systems work as they should.
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The unemployment insurance as a share of personal income peaked at 7.0% in June 2020. Before the pandemic, the highest percentage was in 1975 at 1.5%. Unemployment insurance as a share of personal income declined in the months after June 2020 but has since risen again slightly in recent months.
The peak came right before an additional $600 in federal weekly benefits expired at the end of July. Those additional benefits helped prop up the economy as it was hit by the pandemic, as savings increased in April and spending spiked in May. The economic boost from stimulus checks and those enhanced UI benefits may have kept 12 million people out of poverty.
A new report from the Economic Policy Institute (EPI), a left-leaning think tank, looks at the share of unemployment benefits as part of wage and salary income. They found that, prior to 2020, benefits from UI had never gone above 6% of a state’s salary and wage income; in 2020’s second quarter, it was above 20% in four states.
EPI’s calculations used wage and salary data while Insider looked at unemployment insurance as a percentage of total personal income.
What the unemployment spike could mean for future reform
Importantly, according to the EPI report, the influx of federal UI benefits – both in the form of the additional $600 and the Pandemic Unemployment Assistance (PUA), which made more workers eligible for employment benefits – helped fill the holes in states’ unemployment benefits.
“In particular, states with a higher share of Black residents were more reliant on federal assistance to provide UI benefits,” the EPI report says. “But if the pandemic programs fade with no structural reforms, the UI system will revert to being one that sees stingier benefits precisely in those states with higher Black population shares.”
The fact that those holes needed to be filled, and the amount of income that unemployment made up during the pandemic, shows the need for unemployment reform, according to EPI.
They argue that reforms could help codify some of the expanded eligibility and equity from beefed-up pandemic-era benefits, and help shore up the system ahead of future downturns.
EPI found that, by the end of 2020, benefits that came from PUA – the program that opened unemployment eligibility to workers who normally wouldn’t be able to access benefits – became the greatest share of federal UI. David Cooper, a senior economic analyst at EPI, said that there were nine states where the money from PUA made up over half of all UI going to workers there.
“I mean, that’s remarkable, that that more than half the assistance provided is going to folks who would not normally qualify for traditional funding,” Cooper said. “That just shows me that our existing eligibility requirements are way out of whack.
The amount of federal money pouring into unemployment – and going to Americans who were out of work during an unprecedented pandemic – helped close gaps in state UI programs and provide direct relief. It also helped to address racial inequities, since, according to EPI, Black workers were more likely to live in states that had weaker UI; on the whole, workers of color, particularly Black workers, were disproportionately impacted by pandemic unemployment.
Even with those expanded benefits, states still struggled to dole out unemployment benefits. Many had to rely on underresourced and neglected unemployment disbursement programs.
“That meant that unemployed workers really had totally different qualities of life, totally different standards of support based solely on where they live,” Cooper said, noting that some states, like Florida, cut back on their UI systems after the Great Recession.
“The federal unemployment insurance programs created by the CARES Act were a lifeline for millions of workers and families across the U.S,” the EPI report said. “However, the unprecedented magnitude of the federal response is indicative of the woefully inadequate benefits and gaping eligibility holes in existing state UI programs.”
Currently, an additional $300 in weekly unemployment benefits is set to last through September. Some Democrats are pushing to make permanent expanded benefits and eligibility.
“The biggest takeaway for me is that states were not there, that all states had not made the necessary investments to be prepared for another downturn, even one that wasn’t as extreme as the one we’ve just gone through,” Cooper said.
He added: “We have to make those investments now. That is abundantly clear from what folks have experienced over the last year.”
