unemployment benefits – Public Policy Institute of California

Early Insights on California’s Economic Downturn

California’s unemployment rate jumped from a historically low 3.9% to 5.3% in March. For comparison, it took a full year from the official start of the Great Recession for unemployment to increase by 1.4 percentage points (although the levels were higher: 5.9% in December 2007 to 7.3% in December 2008). Notably, the March rate is based on data from the middle of the month, so it does not fully reflect the massive layoffs that occurred as the COVID-19 pandemic took hold.

Between March 15 and April 18, 3.4 million Californians applied for unemployment insurance. There has been much forecasting (including by us) about the sectors and workers that will feel the immediate effects of the downturn. We do not have demographic breakdowns and we don’t know which industries employed these workers. But recently released labor market data can provide some new insights.

By mid-March, California had recorded a net loss of 100,000 jobs, comprising about one-seventh the decline nationwide and reflecting the state’s early response to COVID-19 crisis. That’s less than 1% of the state’s 17 million jobs. The lion’s share of job loss (more than 80%) occurred in three service sectors: arts, entertainment, and recreation; accommodation and food; and “other services” (a category that includes automotive repair, personal care, and dry cleaning).

A comparison with the Great Recession highlights the severity of the current situation. Between February and March this year, employment in arts, entertainment and recreation fell 6.4%. Over the first year of the Great Recession, employment in this sector fell 1.6%. The number of jobs lost in the accommodation and food service sector was much higher between February and March, but these losses represented only 2.7% of the workforce in this much-larger sector.

A look at job losses in the industries that were hit hardest during the Great Recession shows that jobs are being lost much more quickly during the COVID-19 crisis. In the first month, construction—the recession’s most severely affected industry—saw a 2.2% decline, and no other sector experienced losses greater than 2%.

These initial data clearly show that the current crisis is hitting a different set of sectors than the Great Recession. It also shows that workers in the initially affected industries are more likely to be women (52% versus 45%), Latinos (25% versus 22%), and young adults (23% versus 10%) compared to workers in other sectors—and to workers in the hardest-hit industries during the first year of the Great Recession.

As the current crisis continues to unfold, a more complete picture of the workers and industries affected will emerge. The staggering number of recent unemployment claims indicates that the losses in the March data are only the tip of the iceberg. April data will no doubt show deeper declines and a widening impact across sectors.

Unemployment insurance will provide an important economic backstop for many workers over the next several months. However, it will be important to monitor the workers and industries being affected by this crisis, both to ensure that policy efforts are directed where they are most needed and to inform additional measures to mitigate the economic damage.

Unemployment Benefits in the COVID-19 Pandemic

Today, the US Department of Labor revealed that 925,450 Californians filed initial unemployment insurance claims during the week ending April 4. This makes for a record-breaking three-week period during which nearly two million claims were filed in California, representing roughly 10% of the labor force. What kind of benefits can these millions of newly unemployed workers receive?

Typically, Californians who qualify for unemployment receive a maximum of $450 per week as long as they are actively looking for work, and that assistance can last for up to 26 weeks. (Notably, benefits in California are less generous than those in most other states: in 2019, its average weekly benefit of $345 ranked 29th.) However, federal policymakers are responding to unprecedented circumstances; so far, they have expanded both eligibility and benefits.

Federal legislation temporarily expands eligibility. The Coronavirus Aid, Relief, and Economic Security (CARES) Act makes self-employed Californians—including gig workers and other independent contractors—who are unable to work or have had hours reduced by COVID-19 eligible to receive benefits. Also, laid-off workers who expect to return to their current jobs are not required to be searching for work.

The new law also supplements and extends benefits. The CARES Act provides $600 per week on top of typical benefits for up to four months. This represents a dramatic boost for most unemployed Californians. The legislation also covers the cost of a 13-week extension of benefits, so that laid-off workers can now receive unemployment for up to 39 weeks.

Unemployed Californians who earn less than $4,000/month would normally qualify for a benefit that replaces roughly half of their earnings, and the benefit covers a smaller and smaller share of earnings above $3,894/month. The $600 federal supplement is higher than California’s maximum benefit and more than covers prior earnings for many unemployed Californians.

It is likely that workers in the state’s hardest-hit sectors make up a large share of early applicants for unemployment benefits. In the accommodation and food service industry—one of the hardest-hit sectors—the average monthly wage is roughly $2,000; an unemployed worker could receive up to $3,700 per month. The average worker in transportation and warehousing, another impacted industry, earns more than twice as much ($5,000/month), but unemployment benefits for this worker would be only slightly higher: up to $4,550 per month.

These expanded benefits will help millions of newly unemployed Californians, but the state and its workers face important limitations and challenges. Given the massive surge in applications, workers may have to wait several weeks—or months—to receive benefits. Moreover, laid-off immigrants who are unauthorized to work in the US will have to rely on other support.

More generally, California’s unemployment insurance fund reserves are inadequate to weather even a mild recession, although the federal government steps in to loan the funds when needed. In the longer term, policymakers should seriously consider reforms to the unemployment system, so that it can respond quickly and comprehensively in the next economic crisis.