The $600 PUC in Wisconsin

Jake has the details on the economic effect all of the additional unemployment and tax payments that came out of the CARES Act and other legislation.

Of mid-western states, Wisconsin lagged behind its neighbors of Michigan, Minnesota, Illinois, and Iowa (and the national average was 34.2%).

Either Wisconsin has been less damaged by the pandemic than other states, or Wisconsin has been less successful than other states in paying out all of the pandemic-related unemployment benefits currently available. I am thinking the latter.

Of course, income was still up in the second quarter of 2020 despite the pandemic because of the stimulus checks and the $600-a-week PUC add-on that did go out. Unfortunately, Lost Wage Assistance is a pale replacement for the $600 PUC, and no other stimulus appears on the horizon at the moment. As Jake explains:

For both Wisconsin and the US, much of the major increase in income in Q2 will be reversed in Q3, due to the lack of further stimulus checks and the end of the $600-a-week add-on for unemployment benefits. We already got a hint what that might look like with July’s personal income report, which showed US income was $1 trillion below April’s number (when most of the stimulus was sent out), but also was $1.3 trillion above March’s figure.

The executive order for an additional $300/$400 PUC is not a good idea

Yesterday, the current president issued four executive orders, one of which has to deal with unemployment benefits.

A law prof, David Super, has more information on the unemployment executive order than probably anyone wants to read.

Here is the substance of the order:

The President directs FEMA to create a new program using $44 billion in Disaster Relief Funds that would allow states to send an additional $400 per week to people receiving UC, PUA, or other public unemployment benefits. To participate in this program, states — which already face $555 billion in budget shortfalls as well as demands to help struggling local governments — would have to pay one-quarter of benefit costs as well as, apparently, the full administrative cost. The President arbitrarily disqualifies the poorest of the unemployed: those receiving less than $100 per week in regular benefits. Once the program has spent the $44 billion, it would shut down.

Prof. Super then runs through all the problems in this proposal. The biggest problem:

Last, and certainly not least, the President’s actions are unlawful. The Stafford Disaster Relief and Emergency Assistance Act does provide for spending Disaster Relief Fund to pay “Disaster Unemployment Assistance” (DUA). That section, however, comes with two conditions that the President’s program violates. First, FEMA may only provide DUA to those who are not eligible for any other form of unemployment compensation. The President’s program, by contrast, is limited to those who are receiving other unemployment benefits. And second, the statute caps DUA benefits at the amount that state UC programs would allow. The whole point of the President’s program is to pay $400 per week more than those (inadequate) benefits. Thus, DUA would probably be a plausible means of replacing PUA should it expire at the end of the year (if any funds remain) but it cannot replace FPUC.

This executive order is likely going to make it harder now and in the future to address economic disasters. “Weaponizing the Disaster Relief Fund in a political struggle with Congress all but assures that similar funds will not be appropriated in the future — with the result of slower disaster responses and more unnecessary hardship,” concludes Prof. Super. Sigh. He’s right.

Update (10 Aug.. 2020): Added a featured image, in light of this press release from NELP on the unemployment executive order:

For Immediate Release: August 8, 2020
National Employment Law Project
Contact: Amy Lebowitz, amy.lebowitz@berlinrosen.com

Following Insufficient Memorandum, NELP Urges Administration to Get Serious About the $600 Lifeline and Comprehensive Unemployment Fixes

Following is a statement from Rebecca Dixon, executive director of the National Employment Law Project:

“Today, the President signed a memorandum claiming to allow states to add $400 to existing unemployment benefits. This is an empty promise to unemployed people. What we had was working for millions of people and supporting our struggling economy – and the support needed to be expanded to cover all unemployed workers. What workers need is for the President to call for legislation that will continue the $600 Federal Pandemic Unemployment Compensations (FPUC) benefits as well as the other federal funds to serve as a lifeline inclusive of all workers, their families, and their communities. This is particularly true for underpaid Black, Latinx, and Indigenous workers, most of all women, who don’t have wealth or savings to cover the basics, much less emergency expenses. And this will harm Black workers who disproportionately live in states with the lowest UI benefit levels..

“NELP also urges the Administration and Congress to, in addition to these essential unemployment benefits, create a relief package that will provide support inclusive of all workers excluded in previous bills, namely immigrants and their families regardless of status. Throughout this crisis people have counted on the essential labor of all workers including undocumented people – exclusion of any worker from the benefits they need to survive is inexcusable.

“First and most importantly, states cannot use their current Unemployment Insurance infrastructure to pay a benefit that is not authorized by Congress. The language in the memorandum says that these benefits must be paid “in conjunction with the State’s unemployment insurance system” which means that states will have to set up a new way to add these payments to existing benefits. As we know, states have been straining under the weight of the surge of applications, setting up a whole new Pandemic Unemployment Assistance (PUA) program, battling an international fraud ring, and dealing with ever increasing directives from the Employment and Training Administration and the Office of Inspector General. Setting up a new system entirely will be difficult, if not impossible.

“Second, in order to be able to pay the benefit, states would have to partially match the federal funds with state allocations that have largely already been spent, according to an analysis by the Center on Budget and Policy Priorities. Indeed, the EO would require many states to go further into debt in order to pay and administer their share of the limited $400 benefit. And at a time when states are in desperate need for federal state and local aid.

“This new $44 billion allocation of federal funding from the Disaster Relief Fund will not go far. Between its inception and August 1, FPUC has paid out nearly $247 billion. Even with a reduced federal cost of $300 per claimant per week, this amount will be exhausted within a few weeks of states even getting a system up and running to pay it.

“Given a finite pool of funds and administrative hurdles to get the benefit running, this will further exacerbate the inequality between states. States that have the most sophisticated systems may be able to stand up this program eventually, but those states that have been faltering due to decades of neglect or outright sabotage will be less likely to see any of this money. As NELP has repeatedly pointed out, the states with the most unstable and impenetrable systems also tend to be states with the highest populations of Black and Latinx workers, as the charts below demonstrate.

“In addition to being impossible to administer, simply adding $400 at this point ignores the need for important corrections to the underlying program. There are a number of technical fixes that Congress must implement immediately just to maintain smooth administration of benefits that workers have waited so long to get. Preserving access and eligibility will depend on a more comprehensive legislative fix.

“This is not a serious approach to solving a very serious problem. We urge the Administration to get back to real negotiations with Congress on a comprehensive and operable approach that will ensure people have the resources they need to survive for the duration of this crisis.”

###

In other words, trying to fix things with duct tape does not actually work.

Why the $600 PUC matters

With 140,000 claimants still waiting on their regular unemployment and (I’m conservatively guessing based on the amount of PUA paid out at the moment) 80,000 PUA applicants still waiting (see the small print at 2), the $600 PUC that has been paid to those found eligible seems more myth than reality.

This tweet explains what the consequences are for the nation when the $600 PUC goes away:

Binyamin Appelbaum @BCAppelbaum
Let’s talk about unemployment benefits.

The federal government is currently “employing” about 20 million Americans at a weekly wage of $600.

In about 10 days, it plans to lay off all of them.

What do you think that is going to do to the economy?

And, this twitter thread has the economics explanation of why the $600 PUC needs to continue right now:

Ernie Tedeschi @ernietedeschi
A short thread on the emergency $600 per week unemployment insurance payment, more formally known as Federal Pandemic Unemployment Compensation (FPUC) /1

FPUC payments are currently coming to around $18 billion per week, supporting 30 million workers. It’s the largest week-to-week federal COVID response program that’s still ongoing. /2

The FPUC raises wage replacement rates substantially for eligible workers: around 2/3 of them are now getting more from augmented UI than they did from their prior jobs. This raises the question of whether the FPUC has reduced job finding. /3

It’s a difficult question to tackle, since the US has never had wage replacement rates above 100% before, but also because the CARES Act relaxed work search requirements for everyone regardless of how generous their UI benefit is. /4

Nevertheless, I looked at transitions into and out of employment in May and June in the household survey, to see if higher wage replacement rates were generally a drag on job finding. I used the superb Ganong et al (2020) UI benefit calculator to link-in likely benefit rates. /5

That calculator is here: https://github.com/ganong-noel/ui_calculator /6

I looked at both the linear effect of wage replacement rates on job finding and job leaving probabilities in May and June, as well as testing for whether there was a “kink” at 100% specifically. /7

The bottom line was that I found no evidence of any effect on labor market flows from more generous UI in May and June, controlling for other demographic factors. In fact some of the point-estimate coefficients were the “wrong” sign. /8

 

I tried it a variety of other ways unreported in my analysis too: adding controls for state reopenings and mobility, adding state rather than Census division fixed effects, doing the analysis as a panel with individual fixed effects. Nothing was statistically significant. /9

This doesn’t mean that the FPUC wouldn’t be binding in all states of the world. If the economy were at full employment, if there were no pandemic, and if the FPUC were a permanent rather than a temporary component of the UI system, I’d expect an effect. /10

But the results suggest that the FPUC isn’t remotely binding right now at the micro level. Given the macro support to the economy from the FPUC and the growing uncertainty over the economic & COVID outlook, I lean more and more that UI generosity should be maintained. /11

Full expiration would mean an economy that is 2% smaller by the end of 2020, and with 1.7 million fewer jobs, than if the FPUC were extended. /12

Even a partial compromise — $300 per week for the rest of the year — would still be an economy 1% smaller by year-end with 800,000 fewer jobs. /13

And those are just aggregate figures. At the individual level, workers would be devastated if the FPUC expired. Almost overnight, their incomes would be cut in half. In states like Arizona, Louisiana, and Mississippi, the typical worker would lose 75% of her benefits. /14

And in states with large populations of unemployed — states like Nevada that are heavily dependent on industries like tourism — losing the FPUC would be equivalent to losing a tenth of all state personal income. /15

This analysis honestly shifted my thinking. I’m still open to the theory that high wage replacement rates could be binding in the future. But I’m much less concerned about that in the near-term than I was, and more convinced that giving up generosity this year is unwise. /FIN

In that last chart, the states that are less affected by the loss of PUC are those states that have paid out less unemployment overall relative to their workforce. Since Wisconsin has been slow to approve unemployment benefits for claimants, the loss of PUC in this state will have less of an impact. Of course, Wisconsin has also gained less from the PUC in the first place because of DWD’s unwillingness to make the claims-filing process easier to navigate and adjudicate.