New personal income data show just how steep the coming fiscal cliff will be
- The Bureau of Economic Analysis (BEA) released data today on personal income showing that the extra $600 in weekly unemployment insurance (UI) benefits—set to expire at the end of July—boosted incomes by $842 billion in May (expressed at an annualized rate).
- We estimate that extending the $600 UI benefits through the middle of 2021 would provide an average quarterly boost to gross domestic product (GDP) of 3.7% and employment of 5.1 million workers.
- The economy’s growth will continue to be tightly constrained by insufficient demand for goods and services, and cutting off a policy support that helps households maintain spending is a terrible idea, both for these households’ welfare and for macroeconomic stabilization.
Congress passed the CARES Act in March 2020 to provide relief and recovery from the economic effects of the coronavirus. By far the best part of the CARES Act was a significant expansion of the unemployment insurance (UI) system, which included a $600 per week boost to UI benefits. Congress settled on a flat $600 top-up to weekly benefits because the antiquated state UI administrative capacity could not handle more tailored ways to increase UI benefit generosity, and giving everybody an extra $600 guaranteed that most workers would receive at least as much in UI benefits as they did from their previous employment.
Today, the Bureau of Economic Analysis (BEA) released data on personal income showing that the $600 benefit top-up boosted incomes by $842 billion (at an annualized rate) in May. The historic nature of this boost coming from UI is shown in Figure A below, which displays total UI benefits divided by total wage and salary income. In May of 2020, UI benefits were 14.6% of total wage and salary income, several times larger than the pre-coronavirus historical high of 2.5% that was registered during 2010.