Five big questions after millions lose federal unemployment aid

More than 9 million Americans this week were cut from federal pandemic jobless aid programs, putting the U.S. economy and its workers in a precarious position heading into the fall. 

While the economy has improved considerably since those programs were created in March 2020, experts fear that the delta-driven wave of the COVID-19 pandemic could hinder many of those Americans — and the broader recovery — until the U.S. moves past the coronavirus. 

Here are five crucial questions about the impact of expiring federal jobless aid. 

Is overall employment expected to increase? 

Twenty-six states pulled out of federal jobless aid programs between April and June and saw slightly higher increases in employment than states that remained in the programs, according to early studies. The removal of aid may push some Americans back into the labor force, but economists fear any benefit could be wiped out by rising COVID-19 cases.

“We’re assuming that the Delta wave will dampen the impact of the reopening of schools, and the ending of the unemployment benefit enhancement, which expired yesterday, alongside the Pandemic Unemployment Assistance program,” wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics, in a Tuesday analysis. 

“All these factors should help drag up the participation rate, after more than a year in the doldrums, but we’re much less confident now that the upturn will be as rapid as we previously hoped.” 

About 1.5 million Americans said they were unable to look for work due to a pandemic-related obstacle, according to the August jobs report from the Labor Department, and the number of people who lost work due to the coronavirus rose by 400,000. Further increases in those categories would likely come with another disappointing jobs haul in September. 

“The $300 special supplement may be the difference between staying on the job while your children are in after-school child care or quitting the job and going back home,” said Joe Brusuelas, chief economist at tax and audit firm RSM, in a Tuesday interview. 

“These are the very stark choices the working class has to deal with.” 

Will consumer spending decline? 

Studies that found higher rates of employment growth in states that pulled out of federal jobless aid programs also tracked sharp drops in spending in those states, particularly among low-income households. 

Employment jumped by 4.4 percent in states that scrapped the $300 weekly supplement and Pandemic Unemployment Assistance program, according to a paper from a team of economists at Columbia University, the University of Massachusetts Amherst, Harvard University and the University of Toronto. But those states also saw household spending drop by 20 percent among households who lost those benefits, totaling roughly $2 billion. 

“The benefits cliff on the margin will result in a slower pace of economic activity that will partially be offset by elevated levels of savings” among financially stable households, Brusuelas said. 

“It’s just a slower pace of growth, but not an economic collapse,” he continued, adding that he expects growth to slow from a 6.5 percent annualized rate to 4 percent in the third quarter. 

How will states respond? 

The Biden administration has encouraged states to use state and local aid from the $1.9 trillion March stimulus bill to extend federal aid programs, but it’s unclear if any will, or are even able to, fund those programs. 

New York Gov. Kathy Hochul (D) said Monday that her state won’t be able to extend the federal programs because state law bans increases to jobless aid payments when the unemployment insurance trust fund is running a deficit. 

A spokesman for the California Department of Finance told The Sacramento Bee that the state doesn’t have enough federal aid left over to fund a jobless aid extension. 

Which industries will be affected the most? 

Industries most likely to benefit from the removal of federal jobless aid are low-paying fields with wages closest to unemployment insurance levels. Restaurants, bars and other small businesses struggling to rehire after the pandemic may be able to lure more workers off the sidelines without the cushion of federal aid.

Workers in the leisure and hospitality sector were 15 percentage points more likely to find a job after the expiration of federal jobless aid than those in other industries, according to a paper from economists at Goldman Sachs.

Even so, the Goldman economists noted that those seeking leisure and hospitality jobs “were also quite likely to find a job once they started looking due to very high labor demand.”

Will the benefits ever return?

The Biden administration ruled out extending the pandemic unemployment programs before they expired and is highly unlikely to support a revival. Instead, President Biden and top Democrats have channeled fears about the state of the recovery behind their ambitious multitrillion-dollar infrastructure, climate and social services agenda, arguing it will help cement a stronger recovery.

A bill to extend federal jobless benefits would also face serious obstacles in the House narrowly controlled by Democrats and would likely fall to a Senate filibuster before reaching Biden’s desk.

Progressive lawmakers, however, say it’s essential for Congress to tackle a broader overhaul of the federal unemployment system after months of backlogs, processing issues and lurching deadlines kept millions from receiving timely aid.

“While the weekly boost and coverage for self-employed workers helped keep the economy afloat and millions out of poverty, millions of jobless workers struggled to access benefits and millions more have been completely unable to access benefits. We can’t fail again to fix it in the wake of the second major economic crisis in 10 years, and this will be a major priority in Democrats’ upcoming jobs package,” said Sen. Ron Wyden (D-Ore.), chairman of the Senate Finance Committee.