The most consequential program in the federal effort to help US workers survive the closure of the economy during the COVID-19 pandemic is one some business leaders in the Atlanta Fed's Sixth District cite as a factor in the reshaping of the workforce as people sit on the sidelines of the labor market, change sectors, or work for themselves.
Atlanta Fed research economist Lei Fang established the significance of one particular program included in the 2020 CARES Act in a March 2022 Policy Hub article titled "Who Benefited Most from the CARES Act Unemployment Insurance Provisions?" Cowritten with Jun Nie, of the Federal Reserve Bank of Kansas City, and Zoe Xie, of the World Bank, their research examined outcomes of the federal response to support workers affected by the pandemic, with the goal of informing future policy discussions if the nation ever again encounters a similar economic challenge and policymakers contemplate avenues to provide direct payments to workers.
The Atlanta Fed’s Lei Fang. Photo by David Fine
The aspect of the CARES Act the paper identified as most significant was the expansion of unemployment insurance (UI) to cover all workers, which created an exponential benefit for low-wage workers. The expansion of UI benefits was a lifeline for low-wage workers because it enabled all of them to access two provisions that have garnered attention during the past two years: a 13-week extension, to a total of 26 weeks, for UI benefits and the additional $600 weekly federal payment to UI through July 2020, followed by subsequent benefits programs.
"There's been a lot of talk about the $600, but less discussion about this very important aspect of the CARES Act, which is the effect of the eligibility expansion," Fang said. "Without the expansion, the extension of UI benefits and the $600 would have affected only those who were eligible at the beginning. If workers weren't eligible at the beginning, the additional benefits would have been meaningless to them."
Covering the previously uncovered
For the first time since World War II, Congress in 2020 expanded UI to cover workers who previously had been excluded from its coverage, an expansion that was part of an ambitious legislative package enacted with bipartisan support as the extent and implications of the global outbreak became apparent. The legislation provided an array of benefits, from Medicaid extensions to protect against spousal impoverishment for recipients of home- and community-based services to reducing the time for private insurers to cover new COVID-19 preventive services from one year to 15 days.
The Pandemic Unemployment Assistance Program (PUA) superseded two traditional eligibility requirements that are based on a worker’s experience in the prior year: earnings of at least approximately $4,000 a year, and at least six months of employment one year before unemployment.
"There's been a lot of talk about the $600, but less discussion about this
very important aspect of the CARES Act, which is the effect of the eligibility
expansion."
—Lei Fang, Federal Reserve Bank of Atlanta
The expanded benefits were intended to mitigate the financial loss that stung the nation’s workers as the economy was intentionally shuttered to reduce infection and death from COVID-19. The policy achieved its stated intent, according to results cited in a working paper Fang, Nie, and Xie released in 2020 and updated in June 2022. Their research determined that:
- Cumulative deaths were reduced by 2.09 percent, with about 12,000 lives saved.
- From April to December 2020, CARES Act spending raised the unemployment rate by 1.61 percentage points (PPT) out of a 9 PPT total increase in unemployment. The same UI policy would have raised unemployment by 0.59 PPT in the absence of a pandemic.
- Also from April to December 2020, of this 1.61 PPT, the breakdown shows the eligibility expansion accounted for 0.57 PPT, while the $600 accounts for 0.33 PPT, and the extension the duration of benefits accounts for 0.17 PPT. The remaining 0.55 PPT stems from interaction among the three components.
Where have the workers gone?
Some of these people haven't returned to the workforce. Their absence appears in the form of supply chain shortages, understaffed restaurants, and a dearth of retail clerks. Steve Simon sees the impact of labor supply shortages everywhere he looks. From his post as a partner at Atlanta's Fifth Group Restaurants, which operates a number of eateries, Simon faces a shortage of about 250 workers out of a prepandemic staff of about 950, a shortfall that is slowing the reopening of restaurants. In the meantime, Simon has watched as the company that delivers the restaurants' groceries offered its drivers $20,000 signing bonuses and salaries upward of $100,000 a year, while "I have guys in the kitchen scratching their head, making half that." Simon was stunned to visit a Macy's in Brooklyn and see just one clerk on the floor. "That's not a Brooklyn, New York, Macy's problem. That's a nationwide problem," he said.
"If you made $15,000 a year before the pandemic, and knew how to live off
$15,000, and then got nearly $50,000 in one year, you don’t have to rush
back to that job."
—Steve Simon, Fifth Group Restaurants
Simon said his best guess is that pandemic UI payments have enabled some workers to drop out of the workforce. Simon portrayed the political debate over pandemic payments and "who deserves what, and who doesn't" as a situation without a definite answer because of the pandemic's inherent complexities. Personal savings rates are one such example, with the rate rising to 33.8 percent in April 2020 before falling to a rate of 6.2 percent in March 2022, according to the latest report from the Federal Reserve Bank of St. Louis (see the chart). Simon calculates that for some workers, remaining on the sidelines of the labor force is a viable option: "If you made $15,000 a year before the pandemic and knew how to live off $15,000, and then got nearly $50,000 in one year, you don't have to rush back to that job. I don't think that’s a majority of the people, but somebody's gone somewhere, and our population hasn't decreased."
Steve Simon, partner, Fifth Group Restaurants. Photo by Ted Pio Roda
Alejandro Coss suggests that a variety of forces are at play among low-income workers who haven't raced to rejoin the labor force. Coss, the president and CEO of the Latin American Chamber of Commerce of Georgia, thinks some of the Latino workers who formerly worked for chamber members have found ways to make a living wage without taking steady jobs. "Maybe they make enough driving for Uber or delivering food, or doing some other things," Coss said. The pandemic fostered a public acceptance of gig jobs as steady jobs evaporated, bringing on "a mentality shift, from where everybody thought you had to have a job to support your family, to finding other ways to make money and support your family." Coss stopped short of calling these individuals entrepreneurs because, he said, they don't view themselves as the founders of a potential business. Instead, they view themselves as family providers who can spend more time with family as they take greater control of their schedules.
Coss paused to note that past economic episodes provide little in the way of a roadmap for today, recalling the Great Recession: "If you remember the economy of 2008, no one had money, but with the pandemic some of us were lucky and could work from home and our paychecks weren’t affected." Those who wonder why workers aren’t clamoring for their former low-wage positions might blame the government benefits paid during the recession. However, that doesn't explain the situation in Georgia, according to Coss, who recalled that "Georgia was one of the first states to cut that assistance, and my members still cannot find the workers." Coss, like Simon, said he can't put his finger on the one reason that explains the current labor market conditions, though he offered this observation: "The resilience of people in general, and Latinos in particular, is amazing.”
David Pendered
Staff writer for Economy Matters