The number of total initial claims for the week of June 5 finally showed improvement in California, while continuing a longer term decline in the rest of the US.

In California, initial claims processed in the regular program plunged 26.4% compared to the prior week, while PUA claims eased 3.5%. In the national totals, regular claims dropped 13.7%, while PUA claims eased 2.7%. Combined, total claims processed were down 22.6% in California while dropping 12.1% in the US numbers. In the unadjusted numbers, the revised total for the week of May 29 shows the US just under the half million mark in total claims for the first time since the pandemic began.

By industry, the pattern was little changed with the largest number of initial claims (all programs) again filed by workers in Accommodation & Food Service (14.0%), Retail Trade (10.8%), Health Care & Social Assistance (10.4%), Administrative & Support & Waste Management Services (8.4%), and Construction (8.4%).

The California decline broke an 8-week long trend leveling off in the number of claims. The overall trend for total initial claims in the other states has been a decline over the past 14 weeks.

In the most recent results for April, California had the second-highest unemployment rate in the country, only 0.2 percentage point behind Hawaii which is even more dependent on tourism-related employment. The numbers for May will be released next week.

These numbers only cover the officially unemployed and not workers who have left the labor force during the pandemic period including workers who have given up on trying to find a job, workers who are fearful of contracting the disease if they get a job, and parents who had to quit their jobs to take care of their children while the California public schools have remained closed and while substantial uncertainty remains in many districts over when and how they will reopen.

The most recent tier allocations for the week of May 22 from the Department of Public Health show continuing improvement. Counties in the second-lowest Tier 3 restrictions held 33.6% of April’s unemployed, only 0.6% still remain within the second-highest Tier 2, and the lowest Tier 4 rose to 65.9%. All counties remain under some level of restrictions which present barriers to the state’s economic recovery and continued reliance of many workers on unemployment benefits.

While the state is scheduled to move beyond the tier system and reopen on June 15, continued uncertainties over what restrictions will be maintained are likely to affect the extent to which businesses will be able to begin fully restoring jobs at that point. The governor has already indicated the state of emergency under which the previous restrictions were issued will remain in place. A continuing shifting in the proposed workplace rules has led several major business organizations including the Roundtable to urge the governor to issue an executive order that would bring more certainty to the state’s reopening. Even if uncertainty over the state rules is resolved, local governments still have the ability to institute restrictions on their own, raising the possibility of an inconsistent pattern of restrictions that would lead to uneven recovery across the state and increase overall compliance complexity and costs in particular for multi-location employers and employers whose business activities naturally cross jurisdictions such as delivery services.

Although less pressing as summer begins, the continuing uncertainty over how, when, and still if local schools will return to classroom teaching will also remain a damper on the ability of workers to return to jobs. In the most recent survey results for April from the National Center for Education Statistics, California remains near the bottom in the share of students offered in-person instruction (offered to all students).

In the most recent data from the Centers for Disease Control, California again was just above the US average in the share of vaccine doses being administered. As of midday June 10, a total of 39.8 million shots have been administered in the state covering 23.0 million people, or 58.3% of the population and 68.3% of the population age 12 and over. In all, 45.3% of the population (US 42.5%) and 53.2% of population 12 and over (US 50.3%) have been fully vaccinated.

Total EDD backlogs were little changed for the week of June 5, although the number of claims awaiting EDD action showed some reduction. The most current EDD backlog data shows claims awaiting EDD action dipped 3.5%, while the total backlog number was down only 0.4%. The backlog has remained above the one million mark for 12 weeks running. Backlogged claims are defined as those awaiting action for 21 days or longer.

The related call center data indicates overall reduced activity in line with the initial claims decline, but the number of calls answered is also down sharply. Calls dropped 14.5%, but the number answered was down 14.0% as well. On average—using total number of calls received and the number of calls answered by staff—the average caller put in 12.8 calls trying to reach EDD, essentially unchanged from the prior week. Of the unique callers, up to 75% had their calls answered by staff (assuming one call answered per unique caller), again unchanged from the prior week in spite of the overall reduction in the volume of calls.

While the overall claims backlog remains largely due to applications awaiting claimant action, the extreme difficulty in reaching EDD for clarifications—as indicated by the call data—more accurately likely puts a substantial portion instead under the “pending EDD” category.

As an indicator of long-term unemployment in the state, payments for the extended benefit programs (PEUC and Fed Ed) dipped to 22.4% of the total for the week of June 5. While the share has eased from its high of 50.3% in March, the overall trend indicates a substantial share of those receiving unemployment benefits still face the risks of lifetime wage and income effects similar to those that afflicted the long-term unemployed coming out of the previous recession that began in 2008.

In the most recent data from the EDD, California paid out a total of $149.7 billion in benefits under all the UI programs since the week of March 7, 2020. The most current estimate is that up to $31 billion of unemployment benefits was paid out to fraudulent claims, consisting of $11 billion in known fraud and up to $20 billion in suspected fraud. Individual cases of alleged fraud continue to unfold.

The most recent data from the US Department of Labor indicates California’s outstanding loans as of June 8 from the Federal Unemployment Account rose to $21.3 billion. The most recent projections from EDD contained in the May Revise expect the total to reach $24.3 billion by the end of the year. This amount is more than twice the peak of about $11 billion reached during the previous recession that began in 2008. That debt took 10 years to pay off through higher employment taxes imposed on businesses.

The May Revise proposes using only $1.1 billion ARPA funds to offset the current debt. The recently released legislative framework for the budget increases this amount to $2 billion, but applies it over 10 years—thereby leaving it open to legislative reductions under future budgets—and limits the tax relief to an as-yet undetermined subset of small businesses. Both ensure a major tax increase making it more costly for employers to rebuild the jobs lost in the current crisis.

Recent LAO analysis indicates this debt requires $17 to $20 billion in higher tax payments through to about 2030. This amount only covers the higher federal taxes that will be imposed to pay down the state’s debt, and does not include the higher state taxes on employers through continuation of the highest F+ schedule tax rates for another decade or more. Even with these substantial tax increases, the current provisions being considered in the budget will ensure that this critical safety net fund will remain in deficit for some time to come, and will remain vulnerable to rapid deterioration from any future economic downturn.

Only 18 states and one territory have relied on federal borrowing to maintain unemployment benefits. At least eight states as of last summer had already used a portion of their federal relief funds to shore up their UI funds, while others such as Ohio are now proposing relatively broader use of the ARPA funds for this purpose.