The Unemployment Benefit Boost: Initial Trends in Spending and Saving When the $600 Supplement Ended

Abstract

Unemployment benefits have played an unprecedented role in the U.S. economy as a result of record high job losses and the authorization of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The CARES Act authorized a $600-per-week supplement, which hugely increased the value of unemployment benefits, such that the median jobless worker received unemployment benefits equal to 145% of their pre-job loss wages compared to 50% in normal times. The $600 weekly supplement expired at the end of July, however, causing the total value of unemployment benefits paid out to fall by 52 percent between July and August. In this paper, we present evidence that the increased unemployment benefits boosted both spending and savings among the unemployed and that upon the expiration of the $600 benefit supplement in August, families receiving unemployment benefits sharply cut spending and dipped into savings. Our first finding shows that spending of the unemployed increased by 22 percent upon receipt of unemployment benefits and declined by 14 percent in August with the expiration of the $600 supplement. Our second finding shows that the unemployed roughly doubled their liquid savings over the four month period between March and July 2020 but then spent two-thirds of the accumulated savings in August alone. Eventually, without further government support or significant labor market improvements, jobless workers may exhaust their accumulated savings buffer, leaving them with a choice to further cut spending or fall behind on debt or rent payments.

Keywords: unemployment insurance

JEL Classification: J65, E21, E24, I38, H31