Here’s what could happen if the US suspends federal pandemic unemployment benefits

Millions of U.S. citizens who are out of work because of the COVID-19 pandemic have come to rely on a federal boost to the unemployment benefit that now hangs in limbo. Cutting it permanently could spell disaster for the country’s economy, says Northeastern economics professor William Dickens. AP Photo by Nam Y. Huh

President Donald Trump on Saturday issued several executive actions meant to bypass a stalemate in Congress over the details of another economic stimulus package for people and businesses affected by the COVID-19 pandemic. The measures are likely to face legal and fiscal challenges, and are designed only as a stopgap until Congress can agree on a financial package. Hanging in the balance is the pandemic unemployment benefit—and cutting it permanently could spell disaster for the country’s economy, says Northeastern economist William Dickens.

“It’s a disaster waiting to happen,” says Dickens, university distinguished professor of economics and social policy.

Portrait of William Dickens

William Dickens is university distinguished professor of economics and social policy, and chair of the Department of Economics in Northeastern’s College of Social Sciences and Humanities. Photo by Matthew Modoono/Northeastern University

The existing stimulus package expired at the end of July, meaning that the more than 31 million people in the U.S. who are unemployed as a result of the pandemic are starting their second week of drastically slimmer checks. One of the sticking points for legislators has been whether to reinstate the federally funded $600-per-week COVID unemployment benefit, and if so, how much to allot. 

The president ordered the federal government to divert $44 billion from the federal Disaster Relief Fund to provide $300 in weekly supplemental unemployment payments, and called on individual states to contribute an extra $100.

But Congress, not the president, has the constitutional authority to decide how to allocate federal spending, and it’s unclear how much state governments, facing their own budget shortfalls because of the economic crisis, will be able to contribute to fund a benefit that millions of people in the U.S. had come to rely upon

“For the vast majority of people, unemployment doesn’t make up for what they were earning before,” he says. “People are spending almost every dollar of what they receive, and it’s keeping the economy afloat. That will all be lost if the government stops providing it.”

As families have less money to spend on even the bare essentials, the demand for goods and services will shrink, setting off a chain reaction that includes further layoffs and further income loss, Dickens says.

Already, 30 percent of U.S. residents missed their housing payments in June, according to a survey by the online rental platform Apartment List. The figure is consistent with the months prior: Thirty one percent of residents missed their housing payments in May, and 24 percent in April, the survey found.

A federal moratorium on evictions that was put in place at the beginning of the pandemic expired at the end of July as well, and Dickens says he’s concerned that “a big jump in homelessness” could be the result of the abrupt end of two federal benefits.

Additionally, he says, “if you have people who own rental units unable to pay their mortgages, it puts a stress on the whole financial system. We saw what happens when you have a financial panic in 2008, and we saw how long it takes to recover,” Dickens says, referring to the financial crisis a decade ago.

“If we create a financial crisis and do damage to the financial system now, I very much worry that we could be back in 2008 and have to climb back out of a similar hole, even once there’s a vaccine,” he says.

But, Dickens says, there is hope. Such a situation is avoidable, he says, as long as the federal government keeps the economy stable throughout the remainder of this pandemic—stability that relies upon people having enough money to keep the economy afloat.

“We really come out on the other side of this,” he says. “I can see a scenario where, by winter of next year, we could breathe a sigh of relief, but I don’t see that happening if we create a major financial crisis on top of what we’ve already done.”

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