Unemployment Insurance

The US federal government is providing $600 per week in unemployment insurance. The federal funds are in addition to state unemployment as the economic fallout of the response to COVID-19 ravages the country. That stimulus package expires on July 31st.

Two things are real: i) the economy cannot lose personal income support, and ii) the unemployment increase is disincentivizing people to work.

Unemployment Checks Caught Economic Free Fall

The economy balanced as well as could be hoped after issuance of ‘Shelter in Place’ orders in March. The Simone Biles routine has been due to a whopping 10.8% increase in personal income in April. That increase is because of unemployment insurance combined with a stimulus check. As the chart below shows, it is a long way down without the insurance backstop.

Unemployment persists. It was above double digits in June at 11.1%, a needed decrease from 13.3% in May, and down further from 14.7% in April. Projections show double-digit employment persisting. That number is at risk of deteriorating as CARES Act programs run out, and BLS noted inaccuracies in their measure of unemployment. Removing crucial funds from the under or unemployed would break the will of the consumer.

Disincentivizing Work

At the same time, the federal unemployment insurance boost is disincentivizing workers. Workers are making more from unemployment insurance than they would at a job. Why search for work when the pay is better not to? Workers are at risk of self-removing from the job pool.

Individuals work to support themselves. Becoming reliant on government checks is a problem. Supporting a double-digit portion of the population is not sustainable. The weight of dependence is a burden a robust economy would struggle to bear.

Forward

The US consumer has carried the infirm economy. Ultimately, the virus must be contained for a recovery to gain steam. Until that point, the keystone of personal income cannot fall to the levels indicated by unemployment.

The federal government needs to continue unemployment insurance until it has a plan forward. Despite the resilience thus far, this is not the moment to remove the hazmat suit.