An unemployment cliff is coming. Greater than 7.5 million can fall off

Los Angeles County Regional Food Bank employees assist with food distribution in Willowbrook, California on April 29, 2021.

FREDERIC J. BRAUN | AFP | Getty Images

Millions of unemployed Americans will lose Covid-era income support in about a month.

This looming “benefit cliff” appears to be different from others that emerged last year when Congress was able to let the aid flow after an eleven-hour legal agreement.

There does not seem to be any urgency from federal lawmakers to extend pandemic benefit programs beyond Labor Day, their official deadline.

“Almost no one talks about extending the benefits,” says Andrew Stettner, a senior fellow at The Century Foundation, a progressive think tank.

Who is affected?

The cliff will affect Americans who receive benefits through a handful of temporary programs.

This includes assistance for the long-term unemployed as well as for the self-employed, gig workers, freelancers and others who are usually not entitled to state benefits.

According to the Ministry of Labor, more than 9 million people received such assistance on July 10.

Stettner estimates that around 7.5 million services will be drawn by September 6th. They would then lose their entitlement to benefits.

Others who are eligible for traditional state unemployment insurance can receive these weekly payments beyond Labor Day. Around 3 million people currently receive regular state benefits.

However, you lose a $ 300 weekly surcharge.

The average person would have been making $ 341 a week in June without this supplement, according to Labor Department data. (Payments vary widely between states – from $ 177 a week in Louisiana to an average of $ 504 a week in Massachusetts.)

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State benefits replaced around 38% of pre-layoff wages in the first quarter of 2021, according to the Ministry of Labor.

The expansion of unemployment benefits through the CARES Act was unprecedented in the history of unemployment insurance, which dates back to the 1930s.

Even in past recessions, Congress has expanded payments to varying degrees.

For example, during the Great Recession, workers could receive unemployment benefits for up to 99 weeks – far more than the traditional 26 weeks (or less in some states). This aid stopped in December 2013, at which time 1.3 million workers lost their benefits.

During the pandemic, workers were at risk of losing advanced benefits last December and last March, but Congress intervened in both cases, most recently with the US bailout plan.

“There are so many more people than ever before were cut off from something like this,” said Stettner of the looming cliff compared to previous deals.

A recovering economy

Of course, the economy has recovered faster than in previous recessions. It’s now bigger than it was before the pandemic, according to data released by the Commerce Department on Thursday.

New hires have also risen in recent months. The economy created 850,000 new jobs in June, up from 583,000 in May and 269,000 in April. However, the US still needs to restore nearly 7 million jobs lost from pre-pandemic levels.

Critics of the extended benefit programs believe that they caused workers to stay home instead of looking for work, which has made it difficult for companies to fill vacancies and contributed to subdued recruitment.

According to the Bureau of Labor Statistics, there was roughly one jobless person for every vacancy in May.

Twenty-six states ended their participation in federal unemployment programs in June and July in an attempt to encourage recipients to return to work – effectively climbing the benefit cliff for residents by about two to three months.

“Corporations across the state continue to say that if they weren’t for the workforce, they would grow and expand,” said Marcia Hultman, secretary for the South Dakota Department of Labor and Regulation, in May. “Ending these programs is a necessary step towards recovery, growth and people returning to work.”

With the $ 300 addition, nearly half of the unemployed (48%) make as much or more money on unemployment benefits than their lost wages, according to a paper recently released by the JPMorgan Chase & Co. Institute.

The additional funds had little impact on job search among workers, but did not significantly hinder the labor market, according to economists Fiona Greig, Daniel Sullivan, Peter Ganong, Pascal Noel and Joseph Vavra, who authored the analysis.

“We conclude that unemployment benefits were not the main driver of job search until mid-May 2021 and that US policy has therefore been successful in insuring loss of income from unemployment with minimal impact on employment,” they noted.

And while it’s early days, the evidence so far doesn’t suggest that government policies immediately pushed people back into the workplace.

Some economists argue that pandemic-related factors, rather than benefits, are the primary reason workers may not return to the labor market as quickly as expected.

For example, parents may still not have adequate childcare; those who cannot work from home can still be cautious for health reasons; Workers may have moved from their jobs or changed industries during the pandemic.

At the same time, the delta variant threatens to make recovery more difficult. The Covid strain is significantly more contagious than the original and can make people sicker than other virus variants, according to a CNBC-reviewed document from the Centers for Disease Control and Prevention.

According to CDC data, there were more than 62,000 new Covid cases on Thursday, a seven-day average, up from around 47,000 a week earlier. The overwhelming number of hospitalizations and deaths occur among the unvaccinated. However, it appears that vaccinated people with breakthrough cases can still pass the virus on to others, according to the CDC.

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