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Unemployment Insurance supports workers, not a major cause of labor shortages

Abi Chavez-Hernandez
Sep 22, 2021
To keep workers across the nation safe from infection with COVID-19 and stabilize household incomes, in March 2020 Congress expanded unemployment insurance benefits for millions of unemployed workers. These benefits have been crucial to workers and their families throughout the pandemic and have been a major lifeline for many with low levels of wealth. The positive impact of these UI policy changes points to the need for permanent UI improvements. 

As the economy started to recover this summer, with the help of increasing vaccinations and multiple federal relief packages, sectors such as leisure and hospitality experienced some of the strongest job growth and wage increases they have seen in nearly 20 years.  

However, in Minnesota and across the nation, the number of employed workers has yet to return to pre-pandemic levels. Over 8.5 million workers are still unemployed and looking for work as of August 2021. Multiple factors account for this employment gap, but unemployment insurance benefits are not likely the cause.  

Instead, underlying characteristics of the labor market as well as the ongoing impact of the pandemic and the rise of the Delta variant are more likely to be factors keeping some from returning to work.  
  • Lower-wage sectors have experienced the strongest job growth in this summer. If higher unemployment benefits were dissuading folks from returning to work, one would expect the largest impact on low-wage workers. Although the leisure and hospitality sectors’ low wages meant that enhanced federal unemployment benefits replaced a greater share of these workers’ incomes than other workers, these sectors are now adding jobs faster than all other sectors. Employment in leisure and hospitality grew at about 350,000 jobs per month nationally for much of 2021.  
  • Many workers are reluctant to return to work due to fear of infection with COVID-19. Workers surveyed have cited infection concerns as their leading reason for taking longer to find suitable work. While vaccination rates are increasing, only 54 percent of the U.S. population is fully vaccinated (well below estimates of herd immunity needed to control the virus). 
  • Some workers haven’t found suitable child care arrangements. Restrictions early during the pandemic meant some child care providers shut down or laid off staff to stay afloat. Recovering from these losses, child care providers have increased enrollment fees as they struggle to return to pre-pandemic staffing levels. These barriers to affordable child care have disproportionately affected women’s return to the labor force, as they carry a disproportionate share of child care responsibilities. As a result, the gap in labor force participation between men and women has widened. As of this spring, the U.S. labor force participation rate for moms with children under 13 years old was still 4 percentage points below its pre-pandemic level.  
  • Labor participation did not drop in response to increased federal UI benefits, whether 2020’s $600 per week or 2021’s $300 per week federal “top-ups.” Labor force participation rose slightly during the 2020 summer, after the passage of the $600 per week additional pandemic UI top-up and has not dropped significantly since.  
Unfortunately though, workers across the country lost this critical support when federal benefits expired in early September. As federal policymakers consider the Build Back Better pandemic recovery legislation, they should include permanent unemployment insurance reform that sets basic federal standards for coverage, benefit adequacy, and benefit duration to support unemployed workers and the economy. The pandemic highlighted the weaknesses of the nation’s UI system; let’s learn the lessons of the pandemic and make it work better. 

If you would like to contact your elected officials to demonstrate your support for transformational unemployment insurance policy changes that build on the success of the COVID-19 relief legislation, you can do so at our action center