Total initial claims for the week of June 19 saw only a slight dip from last week’s jump in the number of claims processed.

In California, initial claims processed in the regular program were down 4.9% compared to the prior week, while PUA claims were up 8.2%. In the national totals, regular claims dipped 3.6%, while PUA claims were up 7.1%. Combined, total claims processed eased 2.0% in California and 1.5% in the US numbers. In the unadjusted numbers, the total once again dipped below the 500,000 barrier.

By industry, the largest number of initial claims (all programs) filed by workers in Accommodation & Food Service (14.1%), Health Care & Social Assistance (11.3%), Retail Trade (10.8%), Educational Services (10.2%), and Administrative & Support & Waste Management Services (8.8%).

These results essentially reflect a leveling off in the number of claims, short term in the case of the US numbers but a sustained level for California that has seen little change in the overall numbers since mid-April.

As discussed in more detail in our latest Job Report on the May results, most states are now shifting policies to deal with concerns that the unprecedented federal enhancements to unemployment insurance payments are a key factor in the worker shortages that threaten to hold back the speed and extent of the economic recovery. Emerging concerns in particular within manufacturing and other core industries also carry the additional risk of continued supply chain disruptions leading to producer and consumer shortages and consequent high inflation in basic living costs seen over the past few months. The growing worker shortages have significant implications to households and their ability to recover on a personal level, but the broader economy-wide effects are beginning to raise increasingly serious concerns as well.

To date, the states can be categorized within one of three groups:

• Early Action States: 26 states have announced an early end to some or all of the federal enhancements, retaining the core state benefit structures as part of their ongoing safety net programs.
   
• Job Search States: 10 states have announced that only the previous job search requirements will be resumed in order for recipients to maintain benefits. In addition to California whose reinstatement will go into place July 11, these states are: Connecticut (which also is instituting a $1,000 “signing” bonus for workers returning to jobs), Kansas, Kentucky, Maine, Massachusetts, Michigan, New Mexico, Pennsylvania, Vermont, and Virginia.
   
• No Change States: The remaining 14 states and DC have not announced any related policies to accelerate the return to work.

Given the timing of the different policy changes, the monthly jobs and employment data will not reflect these shifts until the data that will be released in August at the earliest. Additional data including the weekly claims data will provide some indications in advance on the effects of these different approaches on the state economic recoveries.

A recent analysis using the State Coincident Index published by the Philadelphia Federal Reserve Bank concluded that the states adopting the Early Action approach are much further along in recovery. The Coincident Index summarizes current levels of economic activity, and is structured to track the GDP trend in each state ahead of the actual GDP estimates, which generally are published with a quarter lag. The chart below summarizes the change for each state, comparing the most recent April 2021 Index data with pre-pandemic levels in February 2020. The No Change States average 4.4% below the pre-pandemic level; Job Search States average 4.8% below; and the Early Action States average only 0.7% below. California comes close to the other Job Search States at 4.6% below.

The disincentive coming from the current federal enhancement levels, however, is likely only one factor discouraging workers from returning to the labor force. Particularly in California with the long delays in returning to full-time classroom teaching, many parents have had few choices other than leaving their jobs while their children remain at home. While the federal enhancements provide some temporary relief to workers forced into this situation by local district actions, the economic recovery is suffering now from the shortage of workers. These workers in turn face longer-term economic risks as their employability and lifetime earnings potential is affected by this period of forced, extended unemployment.

Total EDD backlogs continued to edge up in the week of June 19. The most current EDD backlog data shows claims awaiting EDD action rose 3.5%, while the total backlog number was up 0.2%. The backlog has remained above the one million mark for 14 weeks running. Backlogged claims are defined as those awaiting action for 21 days or longer.

In the related call center data, the number of calls dropped 14.1%, but the number answered were also down by 2.5%. On average—using total number of calls received and the number of calls answered by staff—the average caller put in 11.8 calls trying to reach EDD. Of the unique callers, up to 88% had their calls answered by staff (assuming one call answered per unique caller), little changed from last week but an improvement over prior weeks.

As an indicator of long-term unemployment in the state, payments for the extended benefit programs (PEUC and Fed Ed) dipped to 22.0% of the total for the week of June 19. While the share is about half 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 EDD, California paid out a total of $153.3 billion in benefits under all the UI programs since the week of March 7, 2020. The most current estimate from EDD 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 21 from the Federal Unemployment Account rose to $21.8 billion, or 41% of the total owed to the federal fund. The most recent projections from EDD expect the total to reach $24.3 billion by the end of the year and $26.7 billion by the end of 2022. 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 by both the state and federal governments.

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 although helpful 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.