No V-Shaped Recovery as Congress Can’t Figure It Out

Grim numbers for unemployment insurance claims and the expiration of much-needed benefits frame Congress’ struggle to strike a deal.

It’s been over four months since the U.S. saw the beginnings of a massive spike in unemployment insurance (UI) filings. However, the country is still seeing almost five times as many new claims filed on a weekly basis compared to before the pandemic.

Meanwhile, the boost to UI benefits thanks to the CARES Act—an extra $600 a week for those who have their claim approved—expired this week. Congress is stuck in negotiations on what to do next.

By some estimates, inaction on Congress’ part will likely lead to a significant spike in poverty and could put the economy into a free fall. Hopes for a V-shaped recover are ruined.

Let’s take a look at two whats and a why.

What the latest UI data tells us

UI claims spiked hard in March, going from a little over 251,000 in the week of March 14 to over 2.9 million the following week. Claims went even higher the following two weeks, past 6 million, before gradually receding to 1.2 million for the week of July 25.

There’s one sliver of optimism: This is the week with the lowest number of initial claims since this mess started. Still, short of a massive jobs-creating program or an act of God, we shouldn’t expect anything other than this continuing to plateau or spike again.

Weekly initial claims numbers offer an up-to-date picture of how good or bad things are, though they aren’t directly reflective of where we are. There’s also continued claims, a measurement of how many people remain in the UI system and continue to collect benefits.

Since mid-March, weekly continued claims have increased tenfold through the week of April 25. Since then, we’ve seen a second spike followed by a gradual decrease. Last week, the Department of Labor reported 17.3 million people remained in the UI system.

With so many Americans using unemployment insurance, it’s clear there’s a need for the CARES Act’s boost to UI benefits to be continued in some form. This takes a gloomy turn when you consider…

What Congress is doing about the expiring benefits

Technically, Congress is negotiating a new stimulus bill. But outside the Beltway, this amounts to “doing nothing” at the moment. Talks between Democratic and Republican leadership hit a wall before they even really started.

The Dems’s negotiations starting point is the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act (HR 6800), which passed in the House back in May. It has yet to be taken up by the Senate for a vote.

The $3.4 trillion bill includes extensions of CARES Act stuff, and it would add new programs like funding for state, local, and tribal governments and assistance for rental and mortgage payments. Importantly, it would extend the extra $600 for UI benefits.

At the other end, the GOP, becoming more and more concerned with the effects of another huge and expensive bill on the budget deficit, is seeking a much smaller stimulus package.

Senate Republicans introduced the Health, Economic Assistance, Liability Protection and Schools (HEALS) Act, which has a price tag of about $1 trillion. The bill does not include a lot of the provisions from the HEROES Act, but it does extend the UI benefits boost. However, it cuts the boost down to an extra $200. The act also includes a transition period for states to implement a new UI system with 70% wage replacement. (That’s higher than what many states used pre-pandemic.)

There’s also been talks of a separate bill that would focus solely on the unemployment benefits. Republican Senators Mitt Romney, Susan Collins, and Martha McSally introduced the legislation, which would require states to gradually decrease the UI boost over a few months. States could also opt to cut the UI benefits to 80% of wages lost.

It’s unfathomable that any bill will be passed before mid-August. There’s just too much distance between what both parties want, and Senate Rs are disorganized among themselves. (A large chunk of the caucus has said it wouldn’t vote for the HEALS Act.)

For at least a few weeks, the extra $600 will vanish for millions.

Why we need the UI boost extended

The argument for doing this is simple: continuing the unemployment boost will prevent millions from falling into poverty over the next five months and cushion an economy that is reeling.

According to a study from the Urban Institute, as many as 12.2 million Americans would be kept out of poverty over the next five months if key provisions of the HEROES Act are enacted promptly.

What’s more, the boost to unemployment has been one of the most important things preventing the economy itself from collapsing, according to a report from JPMorgan Chase and the University of Chicago.

UI benefits accounted for 14.6% of total wages in the U.S., over five times the what they accounted for during the Great Recession. That’s mostly due to spending by UI recipients increasing dramatically thanks to the CARES Act. That has largely compensated for the overall decline in spending. In other words, things would likely be far worse economically if it weren’t for the UI benefits boost.

This report does stipulate that the boost to unemployment benefits could be somewhat decreased to $350 extra. However, anything lower—like the current level supported by Senate Rs—wouldn’t be enough to keep the economy afloat these next several months.

There’s no doubt that whatever legislation Congress passes will be expensive. But handwringing about what this would do to the budget deficit helps no one. We need to be swinging for the fences with the next aid package and make this count.

The U.S. GDP saw its worst contraction in history in the second quarter, meaning the tough choices we had made months ago didn’t solve all of our problems. We need to be bold in how we move forward, but in a way that still protects everyone’s livelihood.

That’s why this notion that we need to cut or scale back the lifeline for millions of people right now makes no sense. Concern over “disincentivizing work” completely misses the point. There are way fewer jobs available than before the pandemic; people should be staying home for the most part anyway.

Budget hawk tropes have no place in addressing the current dilemma. The responsible, objectively proper thing to do is at least extend these benefits—the data says as much. And any economic rebound will mean little if we leave people who lost their jobs, through no fault of their own, to deal with this crisis on their own.

Related reading:

• Economist Kevin Rinz details how to interpret UI claims data during the pandemic.
• The New York Times has a great analysis of exactly how far apart the two sides are in negotiating a new stimulus package.