Unemployment claims may never go back to 'normal.' Here's why that's a good thing.
Unemployed people at a rally in Philadelphia last year. Cory Clark / NurPhoto via Getty Images
Unemployment insurance claims are still twice as high as prepandemic, and that may never change.
That's not necessarily a bad thing: it reflects an increased awareness of eligibility.
The CARES Act could mean a permanent change in the way Americans use UI, said RAND's Kathryn Ann Edwards.
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Applications for unemployment benefits are still around twice as high as they were before the pandemic. There is reason to believe that they will never hit those lows - the old "normal" - again.
The weekly number of jobless claims has steadily decreased as more Americans were vaccinated and economic restrictions were lifted. The initial applications were last at 400,000, a little less than in the previous week, but still much higher than the values before March 2020.
Claims may never hit pre-pandemic lows again because many Americans did not know they were eligible for unemployment insurance prior to the pandemic. The economic devastation of the past year and a half opened their eyes to the program and the ghost is likely to stay out of the bottle.
Unemployment has risen in prominence in recent weeks as 26 states end government funding for the UI before it expires in September. But while governors monitor the claims for signs of a strong rebound, some economists are preparing for the increased numbers to persist.
Weekly claims data reflects not only the recovery in the labor market, but also the performance of the UI program, Kathryn Anne Edwards, an economist at RAND Corporation, tweeted in July.
The proportion of unemployed Americans claiming benefits steadily declined from 1950 to 2019. That decline was likely fueled by stricter eligibility requirements like job search rules and earnings tests, Edwards said.
"It's not that the majority of the unemployed don't get a UI, it's that the majority never apply," she added.
That changed when the $ 2.2 trillion CARES bill was passed in March 2020. While UI programs were country-specific and diverse, the historic stimulus package added a federal boost that increased awareness. The ratio of claims to unemployed rose to its highest level since 1950. If this effectiveness continues, claims could remain well above their pre-crisis levels, Edwards said.
The CARES Act "changed the incentive, it changed the scope of the service, and it changed the delivery," Edwards told Insider. "We knew all three things prevented people from applying beforehand."
An argument for widening unemployment
The magnitude of Congressional interventions showed how ineffective states' programs had become. Every recession since the 1970s has left states with fewer UI funding and more reliance on federal aid. The CARES bill gives unemployed Americans the "meaningful" support that states cannot provide on their own, Edwards said. If lawmakers want states to provide such a safety net, major reforms must be implemented in their programs, she added.
"It really speaks to how low the programs had gotten, but also how little money states had to do something similar," she said. "If states have learned anything from this recession, then their unemployment insurance is less important than what Congress will do. And Congress will do something."
Throughout the pandemic, federal programs have emerged to fill the gaps left by traditional unemployment insurance. The pandemic unemployment assistance extended the entitlement to gig workers and the self-employed - by the end of 2020 this program made up the largest part of the unemployment benefits distributed by the federal government.
The White House said in April that it was "committed to strengthening and reforming the system over the long term." Some proposals would not only increase benefits, but also permanently expand who can receive them.
Some Democrats have tabled laws that would incorporate PUA recipients into a more permanent system. Since PUA explicitly included more workers, a permanent extension would also keep the claims higher.
This means that more unemployed people would receive allowances, whatever the purpose of the program. It's good.
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