The Looming Unemployment Benefits Cliff - OZY | A Modern Media Company

The Looming Unemployment Benefits Cliff

The Looming Unemployment Benefits Cliff

By Toyloy Brown III and Emma Foster

By Toyloy Brown III and Emma Foster

A whopping 7.5 million Americans are set to lose unemployment benefits when the Federal Pandemic Unemployment Compensation program expires on Sept. 6, which, ironically, is also Labor Day. The spread of the COVID-19 delta variant means the country’s economic recovery may now be tapering off, but one thing is for sure: With Democratic Sen. Joe Manchin saying he’s “done with extensions,” the financial support is living on borrowed time.

What should Americans expect when it ends? What about talks of an economic boom? What do economists say? Today’s Daily Dose delves into what happens when we drive off the “benefits cliff.”

post-pandemic boom?


Reasons to Be Optimistic

As the number of vaccinated Americans rises and a return to pre-pandemic living appears within reach again, many analysts are predicting the economy will surge. A JPMorgan Chase survey published last month found that 80% of business leaders are expecting higher levels of revenue and sales growth for the remainder of 2021. That figure reflects the most optimism the survey has recorded in 11 years. In fact, the U.S. economy has already made a full recovery by some measures. In the second quarter of 2021, economic output surpassed pre-pandemic levels of quarterly growth. But that does not mean all is well. With a possible surge of COVID-19 infections on the horizon, the economy could take yet another hit.

But for Whom?

While post-pandemic economic trends show promise, the majority of the wealth generated over the past 18 months has gone, and for the foreseeable future will continue to flow, to a select group of people. America’s winner-take-all economy is looking healthy for 2021 and beyond. Apple, Microsoft and Google parent company Alphabet reported combined profits in excess of $50 billion during the pandemic. Meanwhile, gig workers and freelancers, a vast cohort of the workforce that doesn’t typically qualify for state unemployment assistance, will be hit particularly hard once the federal unemployment benefits program ends on Sept. 6. Already, widespread job losses in low-income areas have been a feature of the pandemic.

Some Regions Up, Some Down

The amount of money Americans get from their unemployment insurance benefits changes depending on where they live. These benefits temporarily replace a portion of a worker’s wages when they have been laid off and are looking for a new job. Each state has its own process for determining how much of someone’s income should be replaced by benefits, the total amount of money a person can receive and how long the benefits will last — commonly 26 weeks. In March, Forbes Advisor ranked the best and worst states for unemployment benefits, analyzing the average weekly benefits, the duration those benefits can be received and each state’s cost of living index. Among the 10 “best” states, four are in the Midwest; of the 10 “worst,” five are in the South.

the question of race


The Race Reality

On average, Black workers face double the unemployment rate of white workers who share similar education levels. One reason is labor market discrimination against Black workers, as shown by studies such as the seminal 2003 work titled “Are Emily and Greg More Employable Than Lakisha and Jamal?” This field experiment proved that white-sounding names on identical résumés received 50% more callbacks from prospective employers than Black-sounding names. The findings also suggest that this bias contributes to longer periods of unemployment and an increased likelihood that Black workers will be forced to take lower-paying jobs. RAND Corp. economist Kathryn A. Edwards tells OZY that, according to research, since it is on average more challenging for Black workers to secure work, “Temporary benefits being cut off is more likely to disadvantage Black workers.”

Ways to Improve

How can the labor market be made more equitable for Black workers? One way would be to eliminate the differences among states’ unemployment insurance benefits. Edwards explains that this system is “more prone to unfairness and disparity” and exacerbates inequality “between Black and white workers.” For example, in the U.S., a quarter of Black workers live in three states (Texas, Florida and Georgia) and nearly 60% of the national Black labor force resides in the South. The example Edwards uses for an improved, standard system is that of Social Security, which is federally funded and unrelated to where people live or work. “Uniform benefits based solely on earnings and not location . . . would reduce some of that disparity,” she says.

What’s Next?

Although federal unemployment insurance benefits are set to expire on Labor Day, 26 states have already taken steps to ax them (of these, 11 are in the South). Alexa Tapia of the National Employment Law Project tells OZY that it’s been mainly states in the South (and some in the Midwest) that have opted to scratch the federal assistance. The result? Those states saw employment drop by approximately 0.9%. But for states that have kept them? Employment levels have risen by an average of 2.3%, according to research from Homebase. “It’s clear that unemployment insurance benefits allow workers to return to the right jobs . . . when they are able to,” Tapia says. “We really want to keep our foot on the gas, knowing that these benefits are working as intended.”

domestic bliss?


Renters in Need

Approximately 44 million households, roughly one-third of the U.S. population, rent their primary place of residence. This cohort tends to be less equipped to muscle through periods of joblessness without additional assistance. The link between having a job and being able to afford housing and its related costs is a close one. A March 2020 analysis from the Urban Institute showed that people who struggle to pay rent are more than twice as likely to be unemployed as those who never or rarely face that difficulty. Low-income renters, in particular, tend to work in the five most vulnerable industries which, according to a separate Urban Institute report, are the same sectors that faced the greatest number of layoffs in the past 18 months: accommodation and food service; construction; arts, entertainment and recreation; other service jobs including hairdressing, dry cleaning and repair work; and retail trade.

Rent Moratorium to the Rescue — for Now

The Centers for Disease Control and Prevention had issued an eviction moratorium in September that expired on July 31. Three days later, however, it issued a new 60-day eviction ban that ends Oct. 3 for qualified individuals. For people who cannot afford rent and are losing or have already lost their weekly $300 pandemic unemployment check, the moratorium “will coincide with the unemployment insurance benefits expiring around Labor Day and early September,” Tapia tells OZY. “Just as food stamp benefits are also being cut down again . . . we’re definitely going to see another devastating crisis,” she adds. The best option to avoid a crisis is for affected individuals to apply for rental assistance, although the administration of this program has been “plagued by delays,” according to the think tank Century Foundation.

Parental Leave During a Pandemic

The COVID-19 lockdowns affected most of the workforce, but they hit working mothers hardest. America’s working moms — who are also shouldering the majority of domestic duties — have experienced a greater share of job losses during the course of the pandemic than men. These women were already in charge of household duties — work some equate to a $178,000 annual salary — before COVID, but the added pressure of child care shortages on top of helping kids with virtual school is forcing 1 in 3 to consider leaving the workforce or downsizing their career, moves that could stunt their income permanently. Yale economics professor Ebonya Washington co-authored a 2018 paper, “The Mommy Effect,” which asserts that women miscalculate the difficulty of balancing work and raising a family when they make decisions about their education. Her theories related to the impact of employment on motherhood, ideas that are pertinent today: If the delta variant does take hold in the coming weeks and months, what will that mean for working moms?


    Sign up for the weekly newsletter!

    Related Stories