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  • Writer's pictureSahastha

Unemployment Benefits In the US

Updated: Oct 4, 2023

People are facing job loss and unemployment globally due to Covid crisis. The U.S.Government designed an unemployment benefit programs to help jobless workers in their country. The Covid-19 pandemic left 10 million Americans jobless in its first two weeks. The situation is so serious that the Corona virus Aid, Relief, and Economic Security (CARES) Act has expanded unemployment benefits beginning in 2020 to unemployed people through Pandemic Emergency Unemployment Assistance. In July 2020 payments from state and federal governments for unemployment benefits totaled $18.26 billion.

Impact of unemployment:

Unemployment  is an immediate impact on that person’s standard of living, also face challenges to their physical and mental health. Societal costs of high unemployment include higher crime, also there is a loss of the production, which reduces the GDP growth. Unemployment leads to higher payments from state and federal governments for unemployment benefits, food assistance, and medical care etc. Companies also face less demand for their products, but it is also more expensive for them to retain or hire workers. High unemployment can have a continuous negative impact on businesses and the economic health of the country.

The Facts:

COVID-19 had a dramatic impact on the U.S. economy, with many business closures and unemployment skyrocketing to 14.7% from 4.4% in April 2020. while the number of jobs in non-agricultural sectors of the economy fell by a record 20.5 million. People are receiving unemployment benefits from the Pandemic Emergency Unemployment Compensation fund created in march 2020 through the CARES Act, up to two thirds of unemployed workers were eligible to receive more in benefits than they earned in their prior jobs. This provides an total of 39 weeks of financial aid including the stimulus checks already provided. It has increased the level of unemployment benefits by adding a $600 weekly federal supplement to state benefits and expanded eligibility to workers who would not normally be covered by unemployment insurance, such as gig workers.

Why the boosted benefits are actually hurting

To understand what impact these boosted benefits have had on employment, we first look at the evolution of job vacancies and job applications since the onset of the pandemic in mid-March. While both fell markedly after March 16, the drop in vacancies was triple that of applications. As a result of the collapse in job openings, we find there has been an increase in the number of job applications per open position since the onset of the pandemic. Postings for new job vacancies dropped by 64 percent since mid-March, triple the decline in job applications; this was due to a 20 percent decline immediately after the crisis started and a further 50 percent decline after the CARES Act passed in march end.

US unemployment rate in April 2021 shows that 2.66lakhs jobs were added, which is lower than 1 million jobs that were expected, the unemployment was raised to 6.1%.  the employers  saying that it is a hard time to hire people because higher unemployment benefit and the increased minimum wage to $15. This minimum wage would raise the wages of million essential and front-line workers.

People are getting paid more to stay home, it leads to search less intensively for a new job than they would have otherwise. The gain of finding a job is lower for someone receiving benefits, at least during the maximum benefit period. An increase in unemployment benefits tends to increase the length of time that people remain unemployed and also tends to decrease the effort made by people in searching for a new job. During pandemic period, there are majority of the decline in jobs in few establishments like restaurants and bars, they receive relatively low wages, and therefore they saw a high unemployment insurance replacement rate with the $600 weekly supplement. These leads to fewer applications per job, employers  found it harder to attract applicants due to higher replacement rates.

As workers remain out of the job market for longer periods, their skills become obsolete and the likelihood of remaining unemployed increases. Unemployment becomes acceptable, the natural rate of employment and production falls, resulting in a less-skilled workforce. It will impact heavily in damaging economic development and productivity.

Bottom Line

There was a significant effect of the expansion in unemployment benefits created by the CARES Act on overall employment. Optimal design of unemployment benefits must consider how the payoff, duration of benefits relative to the people basic expenses, previous income level and they receiving benefits were likely to find a job right before their benefits expired. Some workers not wanting to go back to work because of higher replacement benefits. The majority of employment loss was not only due to a decrease in job opportunities, but also a decrease in their willingness to work.  These unemployment benefits turn out to be a problem for the aggregate employment level at certain point and effect whole economy.

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