Total initial claims processed for the week of January 23 were down substantially in the state while easing at a lower rate in the rest of the US.

In California, initial claims processed in the regular program were down by just over half (-54.5%) compared to the prior week, while processed PUA claims were down 64.8% following the initial upsurge due to the recent reauthorization of this program. In the national totals, regular claims eased 7.3%, while PUA claims edged down 4.6%. Combined, total claims processed were down 59.5% in California and 8.6% in the US.

The latest week’s results finally bring California’s trend below the other states, which generally remain largely at stable although higher-than-trend levels so far in 2021.

While the stricter stay-at-home orders are finally being removed, the underlying Tier restrictions continue to encompass virtually all of the workers currently unemployed in the state, either as officially counted in the unemployment statistics and those who left the labor force compared to the pre-crisis numbers in February 2020. The most recent tier allocations for the week of January 25 from Department of Public Health show no changes from the prior week, with nearly all of the unemployed from December residing in counties under the most restrictive Tier 1 provisions. Movement out of those restrictions—either through shifts in tier status or revision of the tier restrictions better reflecting ongoing improvements to the risk data—and consequently the reopening of jobs will be essential for the state to move to recovery especially for the lower wage workers hit hardest by the state’s current approach. Due to its pattern of job recovery from the prior recession that began in 2008, Los Angeles Region continues to experience a strongly disparate impact from the current state restrictions and consequently likely faces a more extended recovery period ahead not only from local economic factors but due to its heavier reliance on tourism activity and the willingness of people to return quickly to pre-pandemic travel patterns.

The chart above is based on the 1.7 million workers officially classified as unemployed in December. Adding in those leaving the labor force raises the total closer to 2.3 million.

Being able to move from the more restrictive tier allocations remains largely tied to the pace of vaccinations. While shifting from near the bottom to the 13th lowest rate among the states, California’s injection rate remains below the US average in the most recent data from Centers for Disease Control. Continued lagging in the injection rate is particularly critical as the state’s COVID strategies produced the 7th worst employment loss rate among the states in the December data. Progress on this measure will require accelerated performance coming from the other. California has received an additional 3.5 million doses since the first week of January, and injections have increased by 2.3 million. The state’s indication it will move from the earlier and overly-bureaucratic approach that hindered the vaccine roll-out to a simpler and readily verifiable age-based system has the potential to eliminate much of the rules-based causes of the early poor performance. However, details have yet to be announced, and the state still has shown no signs it will refrain from announcing another new process only to shift the rules again in the days and weeks after.

The continuing claims backlog remains largely under control in the most recent data from EDD, but the backlog for new initial claims continues to climb primarily due to waits for claimant certifications. Backlogged continuing claims as of January 20 were essentially level from the prior week. Backlogged initial claims were up another 17%. Combined, total backlogged claims were at 941,019, or 16% higher than the prior week. EDD defines backlogged initial claims are defined as those "applications for benefits that take more than 21 days to issue a first payment or to disqualify the individual, regardless of if the claimant or EDD need to take some kind of action." Backlogged continuing claims are defined as a "subset of all individuals who received at least one payment and are now waiting more than 21 days for further processing of payment or disqualification."

In the most recent data from EDD, California paid out a total of $114 billion in benefits under all the UI programs through the period March 7 through January 16. While the various emergency programs including PUA and extended payments under both the regular program and the new PEUC component paid from federal dollars, the regular UI program relies on the state’s UI account funded by employer contributions per employee. When the balance of that fund runs out, benefits continue to be paid through borrowing from the federal trust account.

The most recent data from US Department of Labor indicates California’s outstanding loans from the Federal Unemployment Account were $18.6 billion, or 39% of the total amount owed by 19 states. This amount does not include accumulated interest which under the second COVID relief bill is currently waived through March 14. In the previous recession that began in 2008, the state UI fund reached a negative balance of $11.1 billion, and did not return to a positive balance until the first quarter of 2018. Even under the current conditions, the deficit is already approaching twice that amount. The UI program at its essence was developed as insurance against economic cycles and individual firm cycles. Its funding structure was not designed to insure against the current circumstances which are a government-ordered series of shutdowns intended to cope with a public health emergency. The governor’s proposed budget acknowledges these circumstances by including $555 million general fund to cover the anticipated interest payment that will be due in September 2021.

Estimates of how much of this funding has been diverted and wasted by fraud continue to rise. The first indications claimed known fraud at about $1 billion by state prisoners. Over the ensuing weeks, additional revelations have come to light with the latest potential total now pegged at $30.4 billion, composed of 9.7% ($11.0 billion) of known fraud in payments made to date and another 17% of payments ($19.0 billion) made to potentially fraudulent claims.

While it remains highly uncertain how much if any of that $30.4 billion can be recovered, other administrative decisions by EDD now put workers who otherwise followed the rules at risk for having to repay a portion of the benefits they have received. As detailed by the State Auditor in their recent report, EDD at the direction of the Secretary of the Labor and Workforce Development Agency suspended two requirements in order to reduce EDD’s workload: (1) EDD was directed to pay benefits prior to eligibility determination while the requirement for claimants to submit the required certifications was suspended and (2) the requirement that benefit recipients submit recertifications every other two weeks was also suspended.

The first action affects an estimated 2.4 million workers; the second an estimated 1.7 million. Because the underlying federal requirements were still in place, EDD must now go back to these claims, complete the required determinations, and also determine any estimated overpayments. This additional workload will add to an already over-stretched agency and affect the final numbers on the growing debt now allocated to the state fund. More critically, this process means that millions of state workers who have struggled through the state’s shifting rules affecting their jobs directly may now be faced with the added burden of repaying some of the benefits on which they have relied—even though they faithfully followed the state rules as they were told to do so by EDD while billions instead were readily siphoned off through fraud.