By the end of this month, several key pandemic relief programs will expire, ending the valuable lifeline provided to workers and their families experiencing job loss, facing eviction/foreclosure, or needing emergency paid sick days and family and medical leave. While spending is needed across multiple avenues to provide relief and recovery, this post examines the importance of reinstating and extending the suite of pandemic unemployment insurance (UI) programs enacted in the Coronavirus Aid, Relief, and Economic Security (CARES) Act: Pandemic Unemployment Assistance (PUA), Pandemic Emergency Unemployment Compensation (PEUC), and Pandemic Unemployment Compensation (PUC) payments.

If the effective safety net functions provided by these programs were maintained through 2021, millions of workers would be better able to avoid economic catastrophe while out of work due to the pandemic. Maintaining these programs’ effectiveness in providing relief and aid for recovery in the face of rising long-term unemployment rates over the next year requires adding additional weeks of UI eligibility duration.

All told, we find that if these programs’ effectiveness is maintained through 2021, and if the virus is brought under control so that economic growth for 2021 returns to being simply a function of aggregate demand growth, the economy would be boosted by 3.5% and 5.1 million more jobs would be added in 2021.

While this past summer’s rebound from the 22.2 million jobs lost in March and April started strong, job growth has since slowed considerably. The first dose of austerity was the expiration of the enhanced UI benefit in July—specifically, the PUC program that provided an extra $600 per week in benefits. Although the economy grew strongly in the third quarter based on momentum from businesses reopening and strong income support from the CARES programs, these PUC cuts will continue to take a serious toll on job creation going forward. As of October, the U.S. economy is still down 10 million jobs from where it was in February. If job growth continues to slow or even reverse course in the winter months as COVID-19 caseloads rise, states reshutter large swaths of businesses, and federal policymakers provide no additional aid to unemployed workers or state and local governments, it will be years before we return to anything resembling the pre-pandemic economy. It would be a tragedy to force U.S. workers to yet again wait a full decade between brief periods of tight labor markets that drive acceptable wage growth.

When the PUA program—which expanded eligibility to millions of workers usually excluded from state UI programs—and PEUC—which extended regular state programs an additional 13 weeks—expire on December 26 of this year, millions will be left out in the cold. In a Century Foundation report, Andrew Stettner and Elizabeth Pancotti found that 12 million workers will be on either PUA or PEUC when the programs expire in less than four weeks. Further, they found that 4.4 million additional workers will have already faced expiration of the benefits on one of those programs before December 26.

Long-term unemployment (unemployment for 27 weeks and over) has been rising quickly over the last several months, hitting 32% of total unemployment in October. It is likely that the rates of long-term unemployment will continue to rise in coming months—as happened in the aftermath of the Great Recession when long-term unemployment exceeded 40% of total unemployment for three years. This means that maintaining the protectiveness of the pandemic UI programs over the next year requires providing additional weeks of eligibility for workers who fall into long-term unemployment. Maintaining the effectiveness of these pandemic-related UI programs over the next year would help workers and their families keep their heads above water while breathing necessary life into the economic recovery.

We estimate the income gains, gross domestic product (GDP) growth, and employment growth that would result from maintaining the PUA, PEUC, and PUA programs through 2021. Like prior estimates of the loss in the $600 boost to UI benefits last July, we use the 2020 relationships between personal income from each UI program and the level of unemployment (or long-term unemployment) to project the income boost provided by continued UI support based on projections of unemployment through 2021. Based on that projected income boost, we then project GDP growth and job growth. Our methodology is described in further detail below.

Table 1 illustrates that these UI extensions would create huge economic gains: an income boost of $441 billion, a gain of 3.5% GDP, and 5.1 million jobs created or saved over the next year. Figure A breaks down the job gains by state.

Having more generous and longer-lasting UI benefits turn off in the midst of a recovery that is still 10 million jobs short of pre-recession levels illustrates why these benefits should be dictated by economic conditions, not by the whims of Congress. Implementing effective automatic stabilizers—both in UI and for programs like federal fiscal aid to state and local governments—should be a pressing priority for the incoming administration.

Methodology

Our estimates of the income, GDP, and employment boost from maintaining the pandemic UI programs use the relationship between unemployment (or long-term unemployment) and personal income from the PUA and PEUC programs, and then apply this relationship to predicted unemployment in each quarter of 2021. In general terms, we use the relationship between income from the variety of pandemic UI programs and unemployment (overall or long-term) as a proxy for how much money will be put into the economy if the pandemic UI programs are expanded or reinstated in 2021. Then, we use this estimated income boost to estimate growth in GDP and jobs.

Our estimates employ an adjusted unemployment rate, which includes workers who were misclassified as employed and workers who left the labor force for pandemic-related reasons since February 2020. This actually makes our estimates more conservative, as the income boost per percentage point of unemployment in 2020 is lower with the use of the adjusted (higher) unemployment rate in the denominator. The long-term unemployment rate is defined here as the percent of the labor force who is employed 27+ weeks as a share of the labor force. We assume the relationship between the adjusted unemployment rate and long-term unemployment rate and the Bureau of Economic Analysis Personal Income Data for July, August, and September holds for 2021 and apply these ratios to the predicted unemployment and long-term unemployment rate for 2021 to determine the PUA and PEUC personal income boost. Similarly, the personal income boost from PUC is determined by the relationship between personal income from the PUC and the adjusted unemployment rate in April through August (a conservative estimate given that PUC was only just ramping up in April and had officially ended at the end of July, though back payments were still being made in August).

Predicted unemployment rates for 2021 are estimated by applying quarterly changes in the Congressional Budget Office’s 10-year economic projections of the unemployment rate to our adjusted unemployment rate starting in the third quarter of 2020. To construct predictions of long-term unemployment for 2021, we assume that 40% of the unemployed will be facing long-term unemployment in 2021. This calculation is based on the fact that long-term unemployment as a share of the unemployed has been rising steadily over the last several months and recently hit 32% in October, and that long-term unemployment as a share of total unemployment peaked at 45.1% in the aftermath of the Great Recession and exceeded 40% for three years straight (between December 2009 to November 2012). It is certainly possible this is an understatement, and that long-term unemployment is even a bigger problem in 2021 than it was during the worst years of the Great Recession.

We apply a multiplier of 1.5 to the personal income boost for each UI program separately and divide by GDP to get the resulting percentage boost to GDP. We apply this percent change in economic activity to CBO’s prediction for payroll employment in each quarter of 2021. Normally GDP growth runs faster than employment growth early in recoveries. However, because so much of the job loss associated with the COVID-19 shock has been in sectors with low pay and high labor intensity, we think employment growth will respond more rapidly and robustly to a given increment of GDP growth than during normal recessions. The numbers in the chart are the average boost to personal income, GDP, and employment across all quarters of 2021 for the extension or reinstatement of each pandemic unemployment insurance program separately.

The state-level estimates allocate national employment effects to each state with a weight that is the simple average of a state’s current share of initial and continuing UI claims in that state (as of the Department of Labor Unemployment Insurance Weekly Claims dated November 19, 2020) and total nonfarm employment from the Current Employment Statistics averaged from November 2019 to October 2020. In the table, each state’s change in employment is also expressed as a percentage of its October 2020 employment level.