Key Points
- During the pandemic, a series of temporary federal programs that operated from March 2020 until September 2021 provided record unemployment benefit expansions.
- While those temporary programs followed the long-standing pattern of contemporary lawmakers determining when emergency benefits should be paid, some have proposed instead using unemployment rate “triggers” in the future to automatically turn and keep on such payments whenever state or national unemployment rates are above specific thresholds.
- Examining a key “automatic stimulus” proposal reveals it would have greatly expanded the amount and duration of unemployment benefits paid during the past two recessions, significantly increasing expenses for taxpayers and resulting in larger deficit spending—or, if it was paid for, significant tax increases.
- During the pandemic, such policies would also have provided far larger and longer benefits to claimants in blue states than in red states, exacerbating already-disproportionate benefit payments in blue states.
Executive Summary
The COVID-19 pandemic saw unemployment claims reach a high of over 33 million in June 2020—over two and a half times the prior record set during the Great Recession. From March 2020 until temporary federal programs expired in September 2021, nearly 1.6 billion weeks of benefit checks were distributed. Record state and federal benefits cost $900 billion, far exceeding any prior response to a recession.
Despite that extraordinary response, some policymakers argue that the practice of authorizing temporary unemployment benefit expansions in response to recessions is inadequate and should be replaced by permanent automatic stimulus policies. Applying that perspective, a recent “modernization” proposal by senior Sens. Ron Wyden (D-OR) and Michael Bennet (D-CO) would permanently revive federal unemployment benefit expansions like those deployed during the pandemic, subject to new state and national unemployment rate “triggers.”
This report details how such policies, had they applied during the Great Recession and COVID-19 pandemic, would have significantly expanded the payment of unprecedented federal unemployment benefits far beyond what contemporary policymakers deemed appropriate. Instead of attempting to permanently expand state and federal unemployment benefits in this prohibitively expensive way, policymakers would serve the public far better if they focused their efforts on ensuring benefits already promised can be delivered promptly, efficiently, and without widespread fraud and abuse.
Introduction
Since 1970, to counter the effects of recessions on both individuals and the economy, federal lawmakers have deployed permanent and temporary programs that offer laid-off workers additional unemployment benefits during economic downturns.
Those expanded benefits most often entail providing additional weeks of federal benefit checks to the long-term unemployed who exhaust up to 26 weeks of state unemployment insurance (UI) benefits. During the Great Recession, up to 73 weeks of such federal extended benefit checks were payable in some states, for a record duration of 99 weeks of all benefits available to some individuals.
During the Great Recession and the pandemic, two further unprecedented federal benefit expansions were legislated. First, federal funds increased the amount of each state and federal benefit check (by $25 per week during the Great Recession and by initially $600 and later $300 per week during the pandemic). Second, the previously 50-50 state and federal Extended Benefits (EB) program was temporarily fully federally funded, which resulted in many more states opting to provide its up to 20 weeks of benefits during those periods.1 Also during the pandemic, lawmakers created a first-time program offering federal unemployment checks to millions of independent contractors, self-employed individuals, and others who previously worked too little to qualify for regular state UI checks.
Those and other policies resulted in record unemployment benefit claims during the pandemic, peaking at over 33 million in June 2020—over two and a half times the prior record set during the Great Recession. In all, nearly 1.6 billion weeks of benefit checks were distributed during the 18 months between when the pandemic struck in March 2020 and when temporary federal programs expired in September 2021.2 That’s equivalent to three full months of benefits for each of 121 million US households.3
Those record benefit payouts cost an unprecedented $900 billion in state and federal funds, far exceeding any prior response to a recession.4 As Figure 1 displays, between March 2020 and September 2021, federal unemployment benefits totaled almost $720 billion while state UI benefits added some $175 billion in payments. The extraordinary federal response to the pandemic during those 18 months provided more than double the federal benefits paid over five and a half years in response to the Great Recession.
Despite that unprecedented response, some policymakers have argued that continuing the recent practice of authorizing temporary unemployment benefit expansions in each recession is inadequate and should be replaced by permanent “automatic stimulus” policies. That view was first popularized by Obama administration figures and analysts who argued the extraordinary federal benefits paid in response to the Great Recession were too limited and ended too soon.
Summarizing this view was a 2019 Brookings Institution volume called Recession Ready: Fiscal Policies to Stabilize the American Economy, which argued that the “magnitude and duration” of discretionary fiscal stimulus after the Great Recession were “insufficient.” The volume called for more “automatic” stimulus policies in the future, linking the provision of federal benefits—including expanded unemployment benefits and increased food stamps, housing assistance, stimulus checks, state aid, and transportation spending—to elevated unemployment rates.5
Applying that perspective to the unemployment benefits system, a recent “modernization” proposal by senior senators would permanently revive federal benefit expansions like those deployed during the pandemic, subject to new state and national unemployment rate “triggers.”6 Supporters argue that, absent such permanent changes, temporary policies could result in future benefit expansions starting too late, ending too soon, and providing too little support for laid-off workers and too little stimulus for the economy.7
It is impossible to know how lawmakers might react to future economic downturns and thus whether fears of inadequate future benefit responses are justified. But it is possible to review how such policies would have affected prior recessionary responses. This report reviews how these proposed automatic stimulus policies would have affected the unemployment benefit responses to the Great Recession and the pandemic, had the policies been in effect at those times.
As the analysis details, in each case such policies would have significantly expanded the payment of extraordinary federal unemployment benefits far beyond what contemporary policymakers determined appropriate. During and after the Great Recession, extraordinary federal benefits would have been payable in all states—regardless of how low their unemployment rate might have been—for nearly two additional years. In a handful of states, extraordinary federal benefits would have remained payable even in the months before the pandemic began— when national unemployment rates reached lows last seen in the 1960s. During the pandemic, these policies would have continued federal benefits well beyond September 2021, when President Joe Biden said it “makes sense” they expired.8 Under one policy guaranteeing that benefits during a health emergency match prior earnings, expanded federal benefits would remain payable today to 1.2 million recipients in all states.9
Those expanded benefits would also have significantly increased federal deficit spending, which President Biden has linked with elevated inflation, and delayed returns to work—troubling outcomes given recent 40-year-high inflation rates and record labor shortages.10 During the pandemic especially, the additional benefits payable under these policies would have flowed almost exclusively to blue states, given their relatively elevated unemployment rates and nearly all red states’ decision to end federal payments in mid-2021.11