Eight weeks into California’s reopening and three weeks before the federal benefit enhancements are scheduled to expire on September 4, total initial claims continue to rise in California while dropping in the rest of the country. Nationally, total initial claims were at their lowest level since the PUA program began in March 2020. California claims continued climbing at levels previously seen in March 2021.

For the week of August 14, initial claims in the regular program were up 4.0% in California and PUA initial claims up 3.3%. Nationally, regular initial claims were down 4.5%, but PUA claims were up 5.3% due to a sharp rise in Oregon. In total, initial claims rose 3.7% in California, while dropping 2.1% in the US total. California accounted for 22% of new claims in the regular program, and 49% of PUA claims.

As discussed in more detail in our 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 while also contributing to inflationary pressures. These policy changes can be categorized within one of three groups:

• Early Action States: Previously, 26 states had announced an early end to some or all of the federal benefit enhancements prior to the September expirations, retaining the core state benefit structures as part of their ongoing safety net programs. Lawsuits against these actions have been filed in at least 10 states, with judges issuing injunctions on at least a portion of these actions in Indiana and Maryland, leaving 24 states in this category. These states generally also 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. Oklahoma also provides up to 60 days of free child care for returning workers.
   
• Job Search States: California and another 22 states (including now Indiana and Maryland) 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. California while technically in this category, has implemented job search requirements that are far broader than those in many other states, and that include a range of qualifying activities short of actually applying for jobs.
   
• No Change States: Only 4 states have not announced any related policies to accelerate the return to work.

These distinctions will largely disappear after September 4, when the federal pandemic unemployment benefit enhancements expire. EDD, however, has indicated that they will continue processing some claims filed covering the eligible periods. Last week, President Biden indicated he remained open to the possibility of extending the $300 weekly federal supplement, but this week the Administration in a letter to Congress stated the federal enhancements should be allowed to expire as scheduled and the states instead should apply federal pandemic relief funds they already have received if extensions are required based on state economic conditions.

Taking the week of June 12—when the first changes under the Early Action states went into effect—as the comparison base, the now 24 Early Action states combined have seen a 33.1% drop in the number of initial claims. California in this period has seen claims steadily rising, now at a 39.4% 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 24.8% drop. Putting aside Illinois, the No Change states saw a 2.3% dip. Illinois, the other No Change state, saw the deepest cuts overall at 51.4%, but this number stems from changes to combat widespread fraud in its system rather than the other policy options underway elsewhere.

Another indicator of differing state policies at work is provided through continuing claims—the number of claims currently being paid benefits under both the regular and federal benefit enhancement programs. As discussed in prior weeks, the number of continuing claims does not translate directly into the number of unique claimants reliant on these programs—US Department of Labor has said it will not provide this type of data until next year at the earliest. The relative levels, however, provide some indications of the performance of California compared to the other states.

While moderating somewhat from the levels at the beginning of the month, California by the end of July accounted for 25.9% of all continuing claims (regular UI, PUA, PEUC, and EB) and 27.9% of continuing claims under the benefit extension components (PEUC and EB)—an indication of how California’s situation reflects a much higher threat of life-time wage and income effects for workers experiencing long-term unemployment. For comparison, both numbers are more than twice the state’s pre-pandemic 11.7% share of the national labor force.

Under their revised definition of the backlog, EDD now counts claims awaiting EDD action for more than 21 days plus claimants who are with the 30-day period to certify their eligibility for benefits. In the results for the week of August 7, the first component dropped 7.3%. The combined total was down 5.5%. EDD has not yet reported the results for the week of August 14.

In the related call center data, overall activity was down considerably, with the number of calls dropping 23.4% to 2.6 million but the number of answered calls dropping 17.8%. After a near term peak of 13.5 calls required to reach EDD the week of July 31, the number eased to 10.6 calls the week of August 7.

In the most recent data from the EDD, California paid out a total of $165.2 billion in benefits under all the UI programs since the week of March 7, 2020 and through the week of August 7, 2021. The most current estimate from EDD is 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 continue to unfold. Nationwide, current fraud total estimates range from $87 billion to $400 billion.

The most recent data from the US Department of Labor indicates California’s outstanding loans as of August 17 from the Federal Unemployment Account rose to $23.5 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 exceeded the EDD projections by about $2 billion. At this rate, the total by the end of 2022 is likely to be closer to $30 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.

In the current debt circumstances, California employers are locked into paying the higher F+ state rates likely for more than another decade, while the federal tax increases are currently slated to start going into effect next year. These tax increases will more than outweigh the assistance recently included in the state budget, more than offsetting that effort to stimulate jobs restoration in the state.

The number of states with a federal fund debt remains at only 15 (plus the Virgin Islands). California accounts for 44% of the total.