Total initial claims in California were basically unchanged the week of July 17. The total rose for the US as a whole due to a rise in the numbers in a few states, in particular resumption of PUA claims in Indiana as the result of court challenges to that state’s early phase-out of enhanced benefits in order to counter labor shortages and a sharp rise in regular claims in Michigan due both to the annual automotive shut-downs for retooling and slowing production due to supply chain blockages.

In California, initial claims processed in the regular program edged up 2.8% compared to the prior week, while PUA claims edged down by 3.1%. In the national totals, regular claims rose 3.8%, while PUA claims grew 14.5%. Combined, total claims processed were essentially level in California while rising 5.9% in the US numbers. The US total edged back above the 500,000 barrier.

As discussed in more detail in our latest Job Report on the May results, most states have shifted policies in response to growing 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. These policy changes can be categorized within one of three groups:

• Early Action States: With Indiana ordered to resume the enhanced benefits, 25 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, while Arizona, Montana, New Hampshire, and Oklahoma have also included a “signing bonus” for those returning to a job. In addition, Oklahoma provides up to 60 days of free child care for returning workers. These changes started going into effect on June 12 in three states, with most of the others following by June 27.
   
• Job Search States: California and another 21 states (including now Indiana) have announced that the previous job search requirements will be resumed in order for recipients to maintain benefits. Of these states, Colorado, Connecticut, and Virginia have also instituted “signing bonuses” for those returning to a job.
   
• No Change States: Only four states 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 now 25 Early Action states combined have seen an 8.9% drop in the number of initial claims. California in this period saw a 13.8% increase in spite of eliminating the previous county-tier restrictions on June 15. The other Job Search states—where these provisions largely were already in effect—saw a 10.3% rise. Putting aside Illinois, the No Change states saw a 4.6% rise. Illinois, the other No Change state, saw the deepest cuts overall at 30.4%, but this number stems from changes to combat widespread fraud in its system rather than the other policy options underway elsewhere. Including Illinois, the No Change states saw a drop of 18.1%.

The most recent backlog numbers for the week of July 17 saw little change in the overall numbers. Backlogs awaiting EDD actions rose 4.7%, while the total backlog dipped 1.2%. The backlog has exceeded 1 million since February 6.

The related Call Center data shows a reversal in sharp drops in activity in last week’s data, with the number of calls again at 3.0 million compared to 2.3 million in the prior week. Both the number of unique callers and the number of calls answered rose as well, but still an average of up to 11.9 calls were required in order for a unique claimant to reach the EDD assistance.

In the most recent data from EDD, California paid out a total of $160.0 billion in benefits under all the UI programs since the week of March 7, 2020 and through the week of July 17, 2021. 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 July 20 from the Federal Unemployment Account rose to $22.7 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.

With Louisiana paying off its debt, the number of states with a federal fund debt dipped to 16 (plus Virgin Islands). California now accounts for 42% of the total.

In developing the 2021-22 state budget, the governor proposed using $1.1 billion in federal pandemic assistance funds—as has been done in other states—to assist in paying down this growing debt. The legislature instead proposed $2 billion, but in tax credits available only to small business over a 10-year period. Enactment of the latest installment on the state budget, however, contained neither provision.

As a result, the current budget also incorporates on a de facto basis one of the largest business tax increases in the state’s history. While the enacted budget amendments also include programs to assist in the recovery of jobs and small businesses, the size of this tax increase outweighs what is being provided several times over. This tax, as discussed previously, is composed of two parts: (1) automatic imposition of the higher federal tax rates (FUTA) beginning next year and (2) continuation of the state unemployment insurance tax at its highest F+ schedule rates, likely into the foreseeable future given the condition of the state fund and the likelihood of yet another economic downturn during the extended period required for it to recover in the absence of additional assistance through the budget.