One week has passed since expanded unemployment insurance benefits expired, leaving an estimated 25 million Americans receiving unemployment benefits without the additional $600 weekly supplement provided by the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act. Congress is considering a range of options to replace this benefit, but lawmakers have yet to find consensus. The implications for families and the broader economy are real.
JPMorgan Chase Institute Take:
JPMC Institute research informs how reinstating a federal supplement to unemployment benefits could impact the overall real economy and individual families.
Changes to consumption
We estimate that for every $1 in UI benefits received, workers spent 73 cents. Extrapolating from this marginal propensity to consume, we estimate that without the federal supplement consumption could fall by 4.3%, more than the total decline in consumption during the Great Recession, as shown in the chart below. The estimate reflects how much the U.S. economy is being buoyed by this payment. UI benefits are not only a lifeline for families but are also helping sustain the economy as a whole.
Impact of Inaction
Even though UI benefits provide back pay if they were to be reinstated, our evidence suggests that spending drops when workers are waiting for UI benefits to arrive. Thus, failing to act now will likely have an immediate impact on consumer spending.
Additionally, job losses have been concentrated among low-income workers during the pandemic. For those lower-income households, a dip in spending means real hardship. As policymakers consider various options, it is important that they consider the potential impact of inaction on both households and the broader economy.