YahooU: The Unemployment Cliff

The covid-19 pandemic continues to cause record unemployment claims, leaving millions of Americans without jobs. Yahoo Finance’s Brian Cheung weighs in.

Video Transcript

ZACK GUZMAN: Yesterday, the Department of Labor report showed initial jobless claims rising for the first time since October and, of course, the headline weekly number. But the report gives us a lot more into the look of the shakiness of the recovery here on the unemployment front, how many jobs are still impacted by the pandemic. For more on that, I want to bring on Yahoo Finance's Brian Cheung in this week's YahooU.

BRIAN CHEUNG: Well, Zack, class is in session. And there's a huge cliff coming. And it has to do with the millions of Americans that are still out of work amid this pandemic. Now, obviously, we all remember the extra $600 a week in unemployment benefits. That expired a few months ago back in July.

But there are two other really important programs that were passed by the CARES Act that are actually set to expire the day after Christmas. And their expiry could leave millions without help in an economy that may face further shutdowns with the virus cases still surging. So I just want to walk you through what these two programs are.

So the first is the Pandemic Unemployment Assistance or what they call PUA. And this covers workers that can't apply for regular unemployment insurance. So think about gig workers, Uber driver, for example, or maybe a food-prep, studio technician that's contracted by another company. So they can apply for PUA.

Then the second program is called Pandemic Emergency Unemployment Compensation. And this allows people to get another 13 weeks of payments if they've exhausted their 26 weeks of state benefits. Now, it's super important given the fact that 26 weeks is about 6 and 1/2 months. And, as we know, we're in month 9 of this crisis.

So here's how these programs all work together. Don't get intimidated by this. I'll walk you through this flowchart. But states are usually the ones that administer traditional unemployment insurance when there is not a pandemic during normal times. And it usually covers up to 26 weeks. It depends on what state you're in.

But, with the pandemic, the CARES Act sought to extend that. So they have PEUC right here. And this funds another 13 weeks of federally funded help, again, through this program. After that, the unemployed can turn to extended benefits, or EB, and that would cover another 13 to 20 weeks.

Now, PUA factors in here as kind of a second channel here. And, again, it's because there are people who can't access that first step because they're gig or contract workers. Now, PUA, interestingly, can also be a reprieve for those who have exhausted kind of the first line of defense here. And, after you've gone through PEUC and extended benefits, if you still need help, you could actually then apply after EB to Pandemic Unemployment Assistance here.

And important to note, you can't get PUA if you're already at 39 weeks of total unemployment here because that's the idea, is that the safety net the CARES Act was really only supposed to cover the period of 9 to 11 months, which is about 39 to 46 weeks. So here we are, though, nine months later. We still have the worst numbers yet for the pandemic. So it's becoming clear that these programs expiring on December 26 will not cover the need for many people.

So here's what's at stake here. This is zooming in on the Pandemic Unemployment Assistance. This shows you the initial claims in purple and then the Pandemic Unemployment Assistance added on top of that in blue. So, for the last few weeks, you can see that the numbers have kind of come down, but they've been plateauing at about a million people in total filing for unemployment claims.

Again, it's much lower than what we saw at the beginning of the crisis. But what's important to know here is that these are initial claims. It's not the total amount of claims. It means the new people now filing for help. So, if you add everything together as at the end of October, according to the Department of Labor, there were about 8.7 million people in total using this program. That's a lot of people.

Now, if we move on to PEUC, again, that extended benefits, as of October 31, a record 4.4 million were turning to help after running out of regular state unemployment insurance. And the skyrocketing figures that we saw in around September or so kind of makes sense, right? As the pandemic extended past six months, I mean, this period is about the 26 weeks or so that covers the initial state unemployment after which point people had to start turning to this program to get help.

So the Progressive Century Foundation had a really interesting report this week. They estimated that 7.3 million workers are set to lose PUA benefits and 4.6 million workers set to lose PEUC, the extended benefits, when the-- both of these programs expire in the end of December, the day after Christmas.

Now, Liz Pancotti, she's one of the authors of the report I spoke with earlier this morning. She was telling me that this is a bigger deal than when they lost the $600 a week in extra unemployment back in July because, at the time, at least you know that there was still going to be some sort of unemployment insurance help. It was just a little bit less.

But, for this instance, when that cliff happens in December, it's not going from $600 extra to a lower amount. It's going from whatever you were getting paid in unemployment insurance to zero. And that could be a really big deal with the amount of unemployment that's still out there, with the amount of COVID cases also hitting new highs, something definitely worth watching the next few months. Zack. Akiko.

ZACK GUZMAN: We've seen more economists warning exactly about that and what it will do to growth in the coming quarters here. But Brian Cheung in YahooU, appreciate that.