We shouldn’t be surprised by the surge in unemployment claims


The Department of Labor announced today that initial claims for unemployment insurance skyrocketed to 6.65 million last week, eclipsing the previous week’s record of 3.28 million, which itself was almost five times larger than the previous record set in 1982. It may appear difficult to find a silver lining in these seemingly terrifying statistics, but two facts should console us.

First, we knew this was coming. Second, the recent bills passed by Congress, for all their flaws, should help most unemployed workers and the broader economy to survive the crisis.

We shouldn’t be surprised by the surge in unemployment claims. The record numbers observed last week occurred after stay-at-home orders were issued the previous week in just five states. At least 30 governors and the mayor of Washington, D.C., have now issued stay-at-home orders that cover 68 percent of the U.S. population. Other states, counties and municipalities have also restricted public gatherings, and we’ll continue to see this reflected in the unemployment data.

Powering down the less-vital parts of the economy to slow coronavirus transmission should, of course, help “flatten the curve” of the number of people needing medical care at any one time and avoid overloading the health care system. The abrupt rise in unemployment filings is part of the tradeoff made by policymakers.

Since this slowdown is largely self-imposed, rather than the result of deep structural problems in the economy, the eventual recovery should be swift. That assumes that the slowdown does not inadvertently create new structural problems, like a financial crisis, that would lead to a more conventional recession.

Enter the Coronavirus Aid, Relief, and Economic Security (CARES) Act, passed by Congress and signed by President Trump last week. The economic relief it provides should help avoid some of the “downstream” effects of workers’ and businesses’ income losses, like loan and rent defaults, which could cascade into other economic failures.

To this end, the CARES Act provides an immediate $1,200 check to every adult whose income is under $75,000, as well as $500 for each child under 17. More importantly, each person receiving state unemployment insurance benefits will receive an extra $600 per week from the federal government through July 31 (worth up to $10,800). Furthermore, the act extends a worker’s eligibility for state unemployment insurance by an additional 13 weeks.

What’s more, the CARES Act makes independent contractors eligible for unemployment insurance. For the first time ever, people working in the gig economy have access to a similar safety net as employees.

Other provisions of the CARES Act address COVID-19 testing and treatment costs, while the Families First Coronavirus Response Act bolsters sick and family leave.

Lastly, the CARES Act provides over $350 billion in loans for small businesses. These are forgivable to the extent that they are used to cover expenses related to payroll, rent and debt, as long as businesses maintain their staff through the end of June.

This isn’t to say that we’re out of the woods, nor that Congress passed anything resembling model legislation. For example, the homeowner mortgage relief in the CARES Act may need some fixes. Other countries, like Canada and Denmark, aimed to keep workers employed rather than relying on unemployment insurance. And the United States missed an opportunity to develop more nuanced solutions that were better targeted to the specific workers and businesses experiencing an income shortfall. But the stopgap solution, which congressional representatives cobbled together using the tools they had at hand, has bought a bit of breathing room.

Once the immediate crisis has calmed down, Congress should learn from the current difficulties and re-engineer the antiquated policies it inherited. Sometimes system limitations delay the receipt of safety-net benefits at the time they’re needed the most (like what is currently happening in some state unemployment insurance programs). And many programs, like unemployment insurance and retirement savings (via 401k programs), require a job to secure safety-net benefits, excluding some of the most needy during an emergency. Similarly, other rules unnecessarily tie individual health care to a person’s employer-provided insurance. Congress should also examine how to simplify the arbitrary distinction between “employee” and “independent contractor,” with an eye toward ending employment classifications altogether.

In essence, the bills just enacted by Congress and the president attempt to motivate workers and their families to practice the necessary social distancing by removing the economic penalty for staying at home. The fact that the additional $600 per week is not retroactive also creates a big incentive to sign up for unemployment insurance quickly. This is why we shouldn’t fear the astronomic unemployment filing statistics — they’re actually a feature, not a bug.

We may be plunging into a recession, but it’s self-imposed, and there is indeed a safety net waiting for us.

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