Another fiscal cliff is looming for millions of unemployed Americans.
The Pandemic Unemployment Assistance (PUA) and the Pandemic Emergency Unemployment Compensation (PEUC) programs are set to expire at the end of 2020, leaving around 15 million jobless workers without any unemployment benefits unless Congress steps in.
“You're really seeing a huge black-and-white change from very aggressive help to the unemployed, to almost nothing in a matter of months,” Andrew Stettner, an unemployment insurance expert and senior fellow at the Century Foundation, told Yahoo Money. “It's just a really untimely and very disastrous situation to let these benefits expire the day after Christmas.”
The expiration of those benefits, along with the exhausted savings of out-of-work Americans, could significantly reduce consumer spending and slow the economic recovery.
‘We pay attention to unemployment insurance when there's a recession’
Currently, 9.4 million workers rely on PUA, which provides unemployment benefits to contractors, self-employed, and other workers — all of which will get their last payment on December 26 or 27.
Another 6 million will lose eligibility for PEUC at the end of the year, according to estimates by Ernie Tedeschi, a managing director and policy economist for Evercore ISI. PEUC provides an additional 13 weeks of benefits once jobless workers exhaust what their state typically provides — approximately 26 weeks of benefits. Currently, 4 million receive PEUC, but more people are relying on it each week that passes by.
“Think about PEUC as being a shadow of the layoffs that we had earlier in the pandemic,” Tedeschi told Yahoo Money. “All the people who got laid off in March and April — coincidentally six months ago — are just now exhausting their state benefits and going over into PEUC.”
Some of the people on PEUC may be able to move to Extended Benefits (EB) a federal program that provides additional 13 weeks but that program is also expiring in many states as their unemployment rates decrease.
The expiration of PUA and PEUC would be the third financial cliff jobless Americans have faced: first, the expiration of the extra $600 in weekly unemployment benefits under the CARES Act in July and second, the expiration of the extra $300 under Lost Wages Assistance (LWA) program in September.
This comes as unemployment claims remain elevated with over 700,000 Americans filing for first-time unemployment benefits last week.
“What usually happens is we pay attention to unemployment insurance when there's a recession,” Michele Evermore, a senior policy analyst at the National Employment Law Project, told Yahoo Money. “Then when it's over, most people go back to their lives and stop paying attention to unemployment.”
‘The recovery loses even more momentum’
While some unemployed Americans survived on accumulated savings over the last few weeks, most of that extra money will be depleted by mid-December if no more stimulus is passed, according to an analysis by Evercore ISI.
Jobless workers more than doubled their liquid savings between March and July, but two-thirds burned through those accumulated savings in August alone, according to a study from the JPMorgan Chase Institute.
“Unemployed workers wisely and prudently saved some of their benefits throughout the year,” Tedeschi said. “These workers will have mostly exhausted whatever savings they had by December.”
They’ve also reined in their spending, recording a 14% drop in August, following a 22% increase when the unemployed received that extra $600 in benefits, the JPMorgan Chase Institute study found.
At the beginning of November, spending was down by 6.4%, after being down just 3.5% in mid-October, according to data from Opportunity Insights and JPMorgan Chase. That trend will likely continue until the end of 2020 and accelerate even more in the beginning of 2021, according to Tedeschi, weighing on the economic recovery.
“It's very possible that when you look at the aggregate, the United States would continue to grow after these programs expire,” Tedeschi said. But “I would expect that it grows at a slower rate and that the recovery loses even more momentum.”