The economic response to–and recovery from–the COVID-19 pandemic has been remarkable. Despite historic job losses, millions of families remained financially secure thanks to the temporary federal unemployment insurance (UI) programs. All the jobs lost early in the COVID pandemic are now recovered, and the prime-age employment rate (ages 25-54) is back to its pre-pandemic high. Such tight labor market conditions have given workers an abundance of employment opportunities, resulting in solid real wage growth for lower-income individuals. 

Nevertheless, these gains do not preclude workers from harmful unemployment spells. For many individuals, the risk of job loss remains unnervingly high, even though the unemployment rate is historically low. Over a million people become unemployed each month, and no longer have access to the temporary support from the pandemic unemployment programs. A disproportionate number of low-wage workers, in particular, are left to maneuver inadequate state unemployment benefit systems when between jobs.

A worker’s market doesn’t stop unemployment

Longitudinal survey data from the Census Bureau released between 2019-2020 (CPS Annual Social and Economic Supplements) helps to demonstrate the underlying issue. While the unemployment rate ranged between 3.5% to 4.1% across 2018 and 2019, the overall proportion of surveyed workers with jobs that experienced unemployment during this period was 10.5%. Although the fraction of workers unemployed in any given month was fairly low, the cumulative percentage of workers ever unemployed was much higher during the two-year period. The topline rate downplays just how large a proportion of the working population, especially those with less income, periodically cycles through unemployment.

Note: To determine unemployment prevalence according to earnings, survey respondents were sorted according to their labor income per week worked (i.e., total wages divided by total weeks worked) over the two years. This approach helped gauge the financial status of workers when employed, since those with unemployment events would likely have their total annual earnings depressed. 

The lowest earners were two to three times more likely to find themselves unemployed at some point than the highest earners. While 5.7% of surveyed individuals in the top labor income quintile (top 20%) experienced unemployment events across these two years, 13.8% and 16.0% of individuals in the bottom two labor income quintiles reported facing unemployment events. 

Clearly, lower-income workers lack the job security that higher-income individuals enjoy, even in a standout labor market. Although the likelihood of unemployment may lessen over the next couple of years, it is reasonable to expect that low-income workers, seeing the best real wage gains of late, will still face consequential unemployment risk. 

Minimize the impact from unemployment

Performing quality job searches and declining substandard job offers when unemployed will remain a challenge without changes to unemployment benefit programs. Low-wage workers will be at a distinct disadvantage given that they have their UI claims appealed more often and are less likely to receive benefits. Even employed workers and their families will be forced to adjust their plans, as they do now. The impending threat of income loss prevents families from adopting preferred household arrangements, like having a parent raise their children at home. 

The scale at which uninsured and underinsured unemployment spells occur must be taken more seriously by policymakers. Addressing the shortfalls with regular UI benefits, including fundamental issues with the claims websites, would enable workers of all backgrounds to smoothly transition between roles and the freedom to make more life decisions, including whether to have a baby. Unless Congress acts, working families will continue facing serious setbacks from unemployment spells and the mere possibility of them occurring.

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