Unemployment Insurance Ending? Save Your Tears for Another Day . . . .

June 4, 2021

There’s this song by the artist The Weeknd called Save Your Tears. Now The Weeknd is a big deal, having performed at the Super Bowl halftime show last year, he’s gotten to the point where missing an “e” in his name matters little. I mean, I’m still somewhat bothered by it, like he has 2-ees, couldn’t he have put one more for the sake of . . . completenss? It’s a thing, so we’ll just accept it. We digress. The reason we bring this song up is because of the refrain, which says . . .

”Save your tears for another day . . .”

We were recently reminded of this when we heard the song while reading that 25 states have opted to end pandemic-era federal unemployment programs for their constituents. We then read another article discussing the impact it would have on the unemployed, and wondered what exactly are on these officials’ playlists?

As a reminder, the federal government’s enhanced benefits come in an alphabet soup of programs, including the Federal Pandemic Unemployment Compensation (FPUC) program, the Pandemic Unemployment Assistance (PUA) and the Pandemic Emergency Unemployment Compensation (PEUC).  In total, about 15.4M workers are receiving benefits under these program (down from a high of 31.6M in May 2020), and prematurely ending the programs will cost local economies ~$12B according to the Joint Economic Council. Ostensibly, it would also save ~$12B for the federal government, but that’s immaterial relative to the $1.9T stimulus bill that extended them from the 2020 CARES Act.

These unemployment insurance (“UI”) programs are set to expire in early September, but half of the states have said no more, and declared that the enhanced UI benefits will no longer be available to laid-off workers in their states. All of the states are led by Republican governors, so obviously there’s some politicking going on, but the states are claiming that the enhanced UI benefits are disincentivizing workers from returning to the labor force and resolving the current shortage. Specifically many point to this:

There are millions of job openings, but where are our workers? Now there are a plethora of reasons offered for why employment hasn’t recovered more robustly, but the truth remains, it is . . . weak. Today’s May employment figures show we added 559K jobs, well short of the 650K expectation, and it follows April’s lackluster 278K addition. While unemployment has fallen from 6.1% to 5.9%, we also anticipated a higher decline given the recovering economy.

Not much we can say about May, other than at least the unemployment rate is falling because jobs are being created and filled (vs. people leaving the labor force).

Many contend that cutting of the federal UI programs prematurely is victim blaming, when in fact those unemployed are unemployed because of a dearth of childcare (hard to return to work if daycare centers and schools are slow to reopen and/or under restrictions), transportation issues (public transportation has yet to recover), increased health risks, and/or lack of proper protections in the workplace.

Frankly, like the economists mentioned in the CNBC article above, we also don’t know the exact culprit behind the disappointing employment numbers. Both sides could be right, though if we were to look at the charts/figures, we’re inclined to lean towards ending UI benefits earlier. Why? Well the JOLTS job recovery chart above does point to a “V” shaped rebound in jobs (as to a plethora of private data providers). Yet, unemployment continues to stay stubbornly high, as well as the number of claims for UI benefits. Those graphs simply aren’t plummeting like they should if the jobs recovery were more robust.

While the leisure and hospitality industries have seen a rebound every month for the past three months . . .

. . . there’s still a long way to go.

Jumpstarting that recovery now in June would better match the current situation and resolve a labor supply/demand imbalance. Alternatively if we wait until September, when the federal enhanced UI program ends, we could be unnecessarily wasting federal dollars and more importantly the opportunity to recover even more quickly. Because again, take a look at the chart above, the service sectors are the industries with the largest unemployment figures, and those industries will require the labor force in place before the services can even be rendered. Egg, then chicken.

We can also see that the current downturn is disproportionately impacting those with lower education levels (vs. the unemployment dip for those with college degrees) . .

. . . and African Americans and Hispanics/Latinos.

So if we want to lift those disproportionately affected by this pandemic, it would stand to reason that we should also want to accelerate the reopening. A rising tide does lift all boats after all.

There is no “perfect” time to do so, but with nearly all of those willing to be vaccinated (i.e., we assumed 70% of those over 18 would want a vaccination) already vaccinated (i.e., 90% have received 1 dose and 75% have received 2 doses), and US cases at a low, it’s time to reevaluate the pace of our reopening and normalization.

Particularly, in an increasingly tight labor market, because after we look through all of the images above, perhaps what really matters is this . . .

We shouldn’t be surprised that our job recovery is lackluster when the incentives to find one are weak. For many, the short-term benefits of enhanced UI outweighs the long-term benefits of gainful employment. As health restrictions lift, there’s undoubtedly a segment of the population that would elect to receive higher wages via UI while reconnecting socially during the summer season, but we shouldn’t necessarily incentivize it to the degree we have.

Perhaps a tapered withdrawal would’ve been more palatable, but that ship has sailed. Inevitably, this does set-up for an interesting real world experiment. For half of the country, we should be able to see shortly what impacts removing enhanced UI will have, and certainly in the Southern states. Academics will later adjust for different industries, demographics, and business sectors, but the data will be compelling. For now though, for the constituents of the 25 states facing a loss of federal UI? It’s time to job search this weekend and . . . save your tears for another day, or so says your governors.