Total initial claims for the week of June 26 saw only a slight dip in the number of claims processed. The total has been little changed since mid-April.

In California, initial claims processed in the regular program were down 10.8% compared to the prior week, while PUA claims largely offset the drop by rising 27.8%. In the national totals, regular claims were down 9.6%, while PUA claims edged up only 3.1% largely in response to the California numbers. Combined, total claims processed eased only 1.3% in California while dropping 6.8% in the US numbers. The US total again dropped below the 500,000 barrier.

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. Various states have taken different approaches to this issues, and 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. These states generally have reinstituted the previous job search requirements as well. These changes started going into effect on June 12 in 3 states, with most of the others following by June 27. A trial court decision just overruled this action in Indiana, but is still subject to appeal.
   
• 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. These requirements have already gone into effect in 8 of the 10 states.
   
• No Change States: The remaining 14 states and DC have not announced any related policies to accelerate the return to work.

Taking the week of June 12—when the first changes under the Early Action states went into effect—as the comparison base, the Early Action states combined have seen a 16.0% drop in the number of initial claims. California in this period saw only a 4.2% drop largely coming from elimination of the previous county tier restrictions on June 15. The other Job Search states—where these provisions largely were already in effect—instead saw a 9.2% growth. The No Change states dropped 13.2%, primarily due to substantially deeper changes in Illinois as that state began dealing with widespread fraud in its system. Putting the Illinois numbers to one side, this group instead experienced only a 2.5% decline.

Total EDD backlogs eased 0.9% the week of June 16. The most current EDD backlog data shows claims awaiting EDD action eased 5.8%. The backlog has remained above the one million mark for 15 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 were down 9.4%, but the number answered also continued to drop, by 2.7%. On average—using total number of calls received and the number of calls answered by staff—the average caller put in 11.4 calls trying to reach EDD. Of the unique callers, up to 91% had their calls answered by staff (assuming one call answered per unique caller).

As an indicator of long-term unemployment in the state, payments for the extended benefit programs (PEUC and Fed Ed) continued dipping to 20.7% of the total for the week of June 26. 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 the EDD, California paid out a total of $155.0 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 29 from the Federal Unemployment Account rose to $22.1 billion. 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, but the current results for the 2nd quarter of 2021 already exceed the EDD projections by about $2 billion. This amount is far 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 recently passed amendments to the Budget Act (SB 129) contain no provisions to deal with the rapidly rising UI Fund debt. The Budget consequently incorporates one of the largest tax increases on businesses in the state’s history, coming at a time when many are struggling to rebuild the jobs lost during the pandemic. The tax increase comes in two components: (1) continuation of the highest state tax rate schedule (F+), now likely for well over a decade if not into perpetuity given the ten years required previously just to retire an $11 billion debt from the Great Recession, and (2) an escalating increase in the federal unemployment insurance tax (FUTA) beginning next year, becoming due with the first tax payments to be filed in 2023. The scale of these tax increases dwarf the total of business assistance currently provided in the budget. In addition, failure to deal with this growing debt will increase future draws on the general fund for interest payments, estimated by LAO to total up to $5.2 billion based on total debt of only $20 billion rather than the $26.7 billion and likely higher total currently estimated.

While additional federal relief is always a possibility, the issue from a federal perspective is largely a California one and at best one affecting a few other large states. Only 18 states and one territory have relied on federal borrowing to maintain unemployment benefits. Of these, the most recent Department of Labor data shows the California share of the total debt reaching 41%. 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.