Unemployment benefits during the pandemic helped workers more than in the Great Recession
Unemployment benefits during the pandemic provided a better financial buffer for a much larger share of Americans than during the Great Recession — especially among low-income workers.
More than half (52%) of unemployment insurance recipients whose 2020 earnings dropped by 10% or more received benefits that met or exceeded the amount their earnings decreased, according to a new study by the Federal Reserve Board. In 2009, only 19% of benefits recipients were made whole.
“The share of lost earnings replaced by unemployment insurance was far higher in 2020 than in other recent years,” the authors of the paper wrote. “The frequencies of large earnings declines when including unemployment benefits are below that from the Great Recession through the entire distribution.”
While a similar percentage of workers saw their income decline at least 10% in 2020 (33.1%) versus in the Great Recession (33.2%), the financial outcomes for workers in the pandemic were much better thanks to the expanded unemployment benefits and stimulus payments.
At least 42 million people received unemployment benefits in 2020, the study analyzing IRS tax records data found, totaling $493 billion, or more than three times the amount of benefits paid each year during the Great Recession.
During the Great Recession, there were two programs extending the duration of the unemployment benefits, adding 53 weeks on top of the 26 weeks workers get in most states. During the pandemic, the expansion of unemployment programs was much bigger.
On top of extending unemployment for another 53 weeks, the pandemic unemployment benefits also were higher. At different points in 2020 and 2021, workers received an additional $300 to $600 in weekly benefits on top of their regular benefits. Additionally, millions of workers who don’t usually qualify for unemployment — including contractors and freelancers — got access to benefits during the pandemic, which wasn’t the case in 2009.
The unemployment benefits during the pandemic reduced the likelihood of large income declines by 12 percentage points, the study found, while unemployment benefits during the Great Recession led to only a 1.5 percentage point reduction. The stimulus payments during the pandemic further softened income shocks, reducing the likelihood of earnings declines by another 5 percentage points.
The study found that 37% of workers who experienced a large income decline during the pandemic received unemployment benefits. That’s significantly higher than in the Great Recession when just 27% received benefits. The low percentages could be because some workers didn't qualify for benefits, did not apply for the programs, or their employment change was voluntary, the paper noted.
Unemployment benefits during the pandemic also replaced a bigger share of lost income than in previous recessions. The median replacement rate was 103% in 2020, versus 56% in 2009 and 64% in 2010, the analysis found.
Those hit hardest also received better support during the pandemic.
While workers in the bottom 20% were the most likely to experience large income drops during the pandemic, they were also the most likely to have their lost earnings entirely replaced. More than 85% of workers in the lowest-earning quintile were made whole, translating into $5,650 of benefits, the study found.
“While the COVID-19 recession was remarkable for the extent to which it disproportionately affected lower-earning workers, the targeting of the fiscal response towards the lower end of the distribution was effective at limiting the frequency of large earnings declines among these low-earning workers,” the authors wrote.
Denitsa is a writer for Yahoo Finance and Cashay, a new personal finance website. Follow her on Twitter @denitsa_tsekova