Lessons from Pandemic Unemployment Benefits: When Government Generosity Becomes Necessity

Effects of Expanded Unemployment Benefits on Spending during the Pandemic

During the pandemic, the US government implemented the CARES Act, which provided expanded unemployment insurance benefits. This included increasing the level of benefits and expanding eligibility. The expanded benefits resulted in higher income for unemployed individuals, with some earning more under unemployment insurance than they did from their previous jobs. Surprisingly, spending also increased among the unemployed, stabilizing their spending at pre-unemployment levels. The expansion of benefits served to help prop up the economy and prevent a significant decline in spending. Lower-income workers benefited the most from the expansion, as the higher benefits had a larger impact on their income. Additionally, the expansion also resulted in positive racial equity impacts, benefiting historically disadvantaged groups. However, there were challenges in delivering the benefits, including delays and errors in payment. The research suggests that temporary expansions of unemployment benefits during a crisis can have a stabilizing effect on the economy, with lower disincentive effects on labor markets while providing support to those in need.