Extending UI is Essential to Safeguarding Financial Security and Our Economic Recovery
Within a week the Federal Pandemic Unemployment Compensation (FPUC) program will expire, ending the extra $600 a week in Unemployment Insurance (UI) benefits that the program provides for more than 32 million people. Faced with this urgent deadline, many policymakers and economic experts have been locked in a debate about whether the program disincentivizes people returning to work. This is the wrong debate.
Coronavirus cases are still on the rise, and the consequences for families across the country are dire. Unemployment is at 11 percent. Nineteen to twenty-three million people are at risk of eviction. Almost 20 percent of workers who lost their job or were furloughed also lost their health insurance. For all of these challenges, the effects on Black, Latinx, and other households of color are particularly acute – and it’s time the government extends enhanced UI benefits and provides relief to the people most affected by the pandemic.
Full recovery is months if not years away. Policymakers need to consider how UI supports the financial security of recipients rather than if it pushes them to work in unsafe and potentially life-threatening conditions. On that front, UI has been a lifeline that households cannot afford to lose. It prevented evictions, helped households build emergency savings, and reduced reliance on debt.
Extending UI Could Prevent Millions of Evictions
Millions of households have relied on enhanced unemployment insurance benefits to make housing payments. According to the U.S. Census’s Pulse survey of COVID-19 impacts, over 10 million renters (18 percent) who successfully made rent on time at the beginning of June and almost 10 million owners (11 percent) who made a mortgage payment received UI benefits. The Aspen Institute and the COVID-19 Eviction Defense Project found that the expiration of enhanced unemployment benefits is a significant contributor to putting 20 million renters (1 in 5) at risk of eviction by Sept. 30. Similarly, the Census Bureau Pulse Survey estimates that almost 23 million renters (31 percent) have no or only slight confidence that they would be able to make rent in August. Particularly for renters, enhanced UI can make the difference between being able to socially distance at home and eviction in the middle of a pandemic.
Households Have Saved Through COVID-19, But Not Enough to Last Through the Pandemic
Shortly after Congress passed the CARES Act, multiple surveys and government data showed that households were using that money for two things: purchasing essentials and setting aside modest savings. Amid a pandemic and ongoing recession those savings will be used in coming weeks and months to manage unpredictable finances, but they are no replacement for additional economic support. SaverLife, a San Francisco-based nonprofit which helps people save, estimates that, despite their members’ increased savings from federal aid, most of their members would deplete their savings within a month without UI benefits, and almost all would deplete their savings in three months. In addition, as of July the increased savings rate SaverLife saw early in the pandemic has started to wane.
Households Have Avoided High Interest Debt, So Far
So far, households have not increased short-term borrowing to meet basic needs, risking the possibility of a debt spiral. Researchers at the JPMorgan Chase Institute found in March that JPMC customers (who have more financial resources than the average household) decreased their credit card usage substantially. Similarly, Federal Reserve data shows that credit card debt levels fell in aggregate during the second quarter of 2020. SaverLife reported a 69 percent increase in the number of its users who receive UI benefits between January to July. This likely contributed to small-dollar loan borrowing dropping almost 30 percent among its members in April and May. This stands in successful contrast to the aftermath of the 2008 financial crisis, when payday lending rose through the Great Recession.
These are trends that could easily reverse, however. Without additional financial support, SaverLife has said it expects small-dollar borrowing to increase among its members as the economic fallout from the pandemic continues. In addition, experts expect delinquency rates for other kinds of debt, including mortgages and auto loans, to increase in the coming months, which a drop in UI benefits would exacerbate.
Households of Color Are Facing the Brunt of Financial Insecurity
Financial insecurity issues are particularly acute for households of color. The effects of ongoing unemployment have a disparate impact on Black and Latinx communities, who lose jobs faster in recessions and regain jobs more slowly. Black workers have been particularly hit hard by the health risks of the pandemic as they disproportionately hold jobs in frontline industries.
The household impacts go beyond simply employment. A recent survey found that 2 in 5 people who lost a job or were furloughed from their job had health insurance through their employer (21 percent of those ended up completely uninsured), with Black and Latinx workers most likely to lose employment or be furloughed. Fourteen percent of households with children report sometimes or often not having enough to eat, with that number increasing to 24 percent for Black households and 22 percent for Latinx households. These painful realities will only worsen if enhanced UI is allowed to lapse.
Extending Enhanced UI Could Improve Financial Security, Public Health, and Help the Economy Recover – but only if Policymakers Act Quickly
Policymakers should be commended for their early, quick action through the CARES Act to support the financial security of households. But ending enhanced UI would be the equivalent of quitting after the first leg of a triathlon. Many options are on the table, from extending the program as is, to partially lowering the UI reduction but sending another stimulus check, to tying UI benefit levels to economic conditions. We also need to acknowledge that, with complicated application processes, long waits for many applicants, and outdated technology and systems for benefits, UI is in severe need of modernization.
In the near term, however, the program continues to be foundational to the financial security of households, helping them stay safe in their homes, fend off the dangers of dependence on debt, and save up for the inevitable bumpy road ahead. To safeguard their health, and the economic recovery of the nation, enhanced UI benefits should be extended.