States Are Running Out of Unemployment Funds - COVID-19 Clinical Trial
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States Are Running Out of Unemployment Funds

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    After ravaging nearly every country in the world since January, the coronavirus pandemic has become inexorably linked to unemployment.  

    In just two months, the economic effects of COVID-19 have devastated huge sectors of the U.S labor market and forced more than 36 million Americans to file claims for unemployment insurance.  

    During the first week of May, the Bureau of Labor Statistics (BLS) reported that the national unemployment rate reached 14.7% by mid-April, its highest level since the Great Depression.  

    With such an unprecedented number of unemployed workers, states are facing the very real threat of running out of unemployment funds before the coronavirus crisis is resolved.  

    Unprecedented Unemployment Payments 

    Though Americans had the benefit of watching the coronavirus spread across China and Italy before facing it themselves, it still came as an enormous shock when the pandemic forced the U.S economy to shut itself down.  

    “We have an unprecedented number of people applying for unemployment all at once,” Dominic Wells, a political science professor at Clayton State University in Georgia, explained. “This has created a shock to the unemployment system and it’s understandable that states would not be prepared for such a sudden spike in unemployment claims.” 

    Even before the COVID-19 outbreak left millions of Americans jobless, many states were already running low on unemployment funds. The Department of Labor considers a state’s unemployment funds to be “solvent” if it contains enough money to cover a year’s worth of payouts, based on the average of the three highest years of unemployment in the past 20 years.  

    In February, before statewide shutdowns began, the Department of Labor reported that 21 states didn’t meet that minimum threshold. Among the bottom of the list were two of the states now hit hardest by COVID-19: California, which only had enough for 2.5 months, and New York, which only had enough for 4.3 months. 

    States Can Apply For Help From the Federal Government 

    Luckily, states do have a backup plan if their unemployment funds run dry. They can borrow from the Federal Unemployment Account, a federal account funded by national insurance tax on businesses. Many states have a history of borrowing from the Federal Unemployment Account during past crises. 

    California, for example, borrowed $2.8 billion in 2009 during the Great Recession and finally finished its repayments to the federal government in 2015. Considering that the peak unemployment rate during the great depression was 10%, only half of what the country currently faces, experts worry that the COVID-19 economic shutdown could cause states to empty the Federal Unemployment Account as well.  

    New York has already filed for a $4 billion loan from the Federal Unemployment Account, and other states like California and Massachusetts are expected to do the same.  

    “No system is designed for [this] level of unemployment,” said Lee Roberts, former North Carolina budget director.  So where does that leave states struggling to fund unemployment benefits? They may need to increase taxes, borrow from future spending, or strategically cut unemployment benefits.  


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