March 26, 2020

COVID-19 Impacts Lead to Record-setting Rise in Unemployment Claims

Dave Shideler and Jonas Crews

The economic slowdown resulting from the coronavirus outbreak has led to massive increases in new unemployment insurance claims



This post is part of Heartland Forward's Coronavirus Impact Series, where we break down the weekly unemployment claims data to understand the economic impact of COVID-19 on the economy.

Unemployment insurance (UI) initial claims increased nearly 12-fold in the last week as the response to the COVID-19 pandemic continued to have significant impacts on the economy. Initial claims filings rose from 281,000 during the week ending March 14, 2020 to 3,283,000 for the week ending March 21, 2020—a record.1 This is in the range of estimates reported earlier in the week: 2.3 million2 to 3.25-3.4 million3 filings.

This spike comes as the COVID-19 response expands beyond individualized social distancing measures to businesses reducing their workforces (due to transaction slowdowns) and/or mandatory orders for “shelter in place”, Some have speculated that this number might grossly underestimate initial claims filing, as state unemployment insurance offices struggled to process claims and applicants faced new procedures due to social distancing measures implemented by the offices (e.g., requiring applications to be submitted online, crashed application websites from excessive use, and long wait times at offices).4

This dramatic rise in UI initial claims corresponds to states’ exposure to the coronavirus pandemic. As such, states with the largest number of cases of COVID-19 are realizing some of the largest increases in unemployment claims, such as California, New Jersey, Washington, and Florida (224%, 1,542%, 837%, and 1,045%, respectively). Heartland states Louisiana, Michigan, Illinois, and Texas have been the region’s hardest hit by the coronavirus outbreak, so it’s not surprising that these states also realized dramatic increases in UI claim filings (3,120%, 2,322%, 955% and 862%, respectively).

Part of the dramatic rise in unemployment insurance claims stems from relaxing state and federal eligibility rules to accommodate workers facing reduced hours and/or layoffs induced by the COVID-19 response. Scenarios would include businesses cutting hours and/or temporarily shutting down to cut costs, or workers that have been quarantined and cannot work, even if their employer has not shutdown. This explains why Heartland states like Minnesota and Ohio, though their exposure to COVID-19 cases has been relatively limited, saw dramatic rises in unemployment insurance initial claims (2,804% and 2,565%, respectively).

Other Heartland states also realized large surges in UI initial claims due to industry exposure. Contributing to the spike in Texas’ and Illinois’ unemployment claims are layoffs by Southwest, American and United Airlines resulting from travel restrictions and event cancellations related to COVID-19. Texas has more exposure to airline cutbacks than any other state. Additional insights to industrial slowdowns and their impacts on the Heartland can be found in “Coronavirus Regional Economic Impacts and Policy Responses” at http://heartlandforward.org/coronavirus-regional-economic-impacts-and-policy-responses.

As Congress puts the finishing touches on the 3rd phase of economic stimulus legislation, we will be watching closely how UI claims trend over the coming weeks. On one hand, this week’s claims level is not sustainable simply because there is a limit to how many workers qualify and receive benefits. However, the anticipated expansion of benefits could induce more workers to apply for benefits, especially for self-employed and contract employees who were previously ineligible for UI benefits.

Additionally, despite retailers' need to hire additional employees to keep up with demand for groceries and essential items via online ordering and pickup services, the number of temporary jobs created represent a fraction of the jobs lost because of coronavirus. For instance, Walmart and Amazon have announced hiring a total of 250,000 employees.



Endnotes

  1. https://www.dol.gov/ui/data.pdf

  2. https://www.forbes.com/sites/advisor/2020/03/22/unemployment-insurance-and-covid-19-what-you-need-to-know/#40c18b126691

  3. https://paulgp.github.io/GoogleTrendsUINowcast/google_trends_UI.html; Goldsmith-Pinkham is an Assistant Professor of Finance at Yale University’s School of Management, and Aaron Sojourner is an Associate Professor of Labor Economics at University of Minnesota’s Carlson School of Management.

  4. https://www.nbcnews.com/news/us-news/coronavirus-state-unemployment-websites-crash-applications-surge-n1162731