How the End of the COVID Relief Safety Net Could Drag Down California’s Recovery

On Sept. 5 of 2021, Labor Day weekend, over 2 million Calfornians—more than one of every 20 people living in the state—suddenly lost their incomes. The end of pandemic unemployment aid, with no plans to extend it either at the state or federal level, threatened to become one more drag on a California economic recovery that was already underperforming since Gov. Gavin Newsom ended health restrictions in June, and took a further hit from a new wave of the pandemic driven by the Delta variant strain of the COVID-causing coronavirus.

Those millions lost their work sometime during the previous 17 months of the COVID-19 pandemic. Under a series of federal relief plans, people unemployed due to the pandemic received expanded benefits—including most significantly a weekly “boost” on top of their weekly payment. The additional payouts started at $600 and later, from January of 2021 onward, dropped to $300. 

The “emergency” unemployment program also provided funds to cover workers who normally would not qualify for unemployment benefits at all—freelance and “gig” workers. Unlike workers who were previously on employer payrolls and therefore in many cases eligible to continue receiving their standard unemployment payments, freelancers were completely cut off from any further aid.

California Workers Hit Hard by End of Pandemic-Related Benefits

In California, according to a Rockefeller Institute of Government study, about 18 percent of all unemployment benefits paid out during the pandemic went to recipients of federal Pandemic Unemployment Assistance (PUA), the program designed for “non-traditional,” that is, freelance and self-employed workers, a category generally referred to as “independent contractors.”.

How many Californian independent contractors were hit by the benefit cutoff? According to data from The Century Foundation, which describes itself as a “progressive, non-partisan” think tank in New York City, 1,069,408 of those workers were receiving PUA in California. Another 989,229 “traditional” workers were receiving Pandemic Emergency Unemployment Compensation (PEUC), the program that used federal COVID relief funds to extend regular unemployment benefits. 

After Gov. Gavin Newsom ended most pandemic-related restrictions on June 15, 2021, effectively reopening California for business, economic forecasters saw only a 1.8 percent increase in the state’s job market in 2021, compared to 3.8 percent for the country as a whole. 

So California’s economic recovery from the pandemic-sparked crash of 2020 was already sluggish, in terms of getting people back into the workforce. And then came the Delta variant.

Delta Variant Holding Back State’s Economic Recovery

A new strain of the coronavirus that causes COVID-19, Delta was believed to be two times as contagious as the original COVID coronavirus, and to increase chances of hospitalization and death—especially for those who remain unvaccinated against COVID-19. In California, as of October 1, that was about 30 percent of the vaccine-eligible population, in the state that ranked 16th of the 50 United States for vaccination rate.

The Delta variant caused a resurgence in the pandemic across the country, and California was not an exception. New cases hit a new peak upwards of 14,000 per day (in a rolling seven-day average) at the start of September, after sinking to a low of 887 in mid-June, a level that briefly restored a feeling that life was getting back to “normal” in the state.

The rapid rise of Delta punctured that illusion of normalcy, and, according to the UCLA Anderson School of Management Economic Forecast, “hopes for blockbuster economic growth have been tempered by the spread of the Delta variant and stagnating vaccination rates, which in turn have led to consumer caution and supply constraints.”

In other words, the Delta-driven surge in the pandemic was already putting the brakes on California’s economic recovery—and then pandemic assistance screeched to a halt as well.

The sudden end of federal unemployment benefits left the gig workers and others who remained unemployed without most of the cash that they relied upon to spend on essential goods and services, and simply to circulate back into the economy. According to an earlier Century Foundation study, ending the benefits and  other forms of federal pandemic relief aid would yank more than $16 billion out of the California economy overnight.

Benefits End But No Surge in Employment Numbers

But won’t ending the unemployment assistance programs force workers to redouble their efforts to get back into the job market, quickly increasing employment numbers and giving the economy a boost? The answer appears to be “no,” and the evidence comes from 26 states, all with Republican governors, who cut off the benefits in their states in June and July, months before their scheduled end, claiming that doing so would force the unemployed to “get back to work.”

It didn’t happen. Actually, according to one study, the opposite happened. Payroll firm UKG found that not only did the unemployment cutoff produce no noticeable job growth, the states that ended the benefits grew at only half the rate of states that kept them in place. 

Another study, led by a University of Massachusetts economist, found that the states ending benefits saw a slight increase in employment, about 4.4 percentage points, but far more unemployed workers failed to find jobs than succeeded. Using data from 19 of the benefit-ending states, the researchers found that only 145,000 of 1.1 million jobless workers were able to reenter the workforce.

The small benefit in job growth was offset by the blow to the economy caused by cutting off the benefits. The study found that workers who lost benefits were forced to cut their consumer spending by $145 per week, money that had previously been flowing into their local economies, according to a New York Times report on the study. But that money stopped.

California Job Market Continues Struggling

On Sept. 5, California along with the remainder of the states also ended the benefits. What has happened to the job market since then? Nothing good, according to data on new unemployment claims from the U.S. Labor Department, reported by the Mercury News.

After a slight bump, with new claims dropping from 57,500 to 55,000 in the first week after benefits ended for Californians, the numbers took a sharp turn in the wrong direction. First-time unemployment claims leaped to 68,800 the following week, and a week later they skyrocketed to 86,800—the worst total in six months, and 94 percent higher than expected in a non-pandemic California economy. 

That total accounted for over 29 percent of the country’s new unemployment filings, even though the state accounts for less than 12 percent of the workforce, according to the Mercury News report. 

In early October, California’s jobless claims report showed some optimistic signs, falling to 68,200 for the week ending Oct. 2. But it wasn’t time to celebrate yet. That figure remained more than 50 percent higher than a typical week in the pre-pandemic economy. And even more disturbing for California, the state’s total represented 26.3 percent—more than one out of four—of all jobless claims filed nationwide during that week, even though the state is home to just 11.7 percent of the U.S. labor force. 

Self-Inflicted Wounds to California Recovery

The end to federal pandemic unemployment assistance was just one wound to the state’s recovery. Several self-inflicted wounds in September also posed a threat. On Sept. 30,  the state’s moratorium on evictions of residential tenants by landlords came to an end—and the state simply let the legislative session end on Sept. 10 without doing anything about because, according to a CalMatters report, the lawmakers did not have the “appetite” to extend it, despite the earlier end of pandemic unemployment aid, and the ongoing Delta variant crisis.

Roughly 45 percent of all California households rent their homes, and an estimated seven percent of those are behind on their rent, according to a Bay Area News Group report. Those figures raise the disturbing possibility that with the moratorium thousands of Californians could find themselves out on the street in the coming months, many with little or no income due to the end of federal unemployment assistance. 

The very fact of being homeless is itself an impediment to finding employment. A 2020 report by the University of Southern California Homelessness Policy Research Institute found that a complex set of “institutional barriers” make finding a job much more difficult for people in unstable living situations. People experiencing homelessness face discrimination in the hiring process, and even those who are able to find work find that “employment opportunities generally available to people experiencing homelessness are not only precarious but, in many cases, undesirable, dangerous, and/or exploitative,” the USC report said.

A study by the National Equity Atlas—another USC project in conjunction with the research group PolicyLink—estimated that 724,000 California households owed back rent.

The termination of California’s eviction moratorium appears, then, to pose a further threat to the state’s recovery.  But that’s not the only one. On Sept. 30, the state also ended a moratorium on utilities shutting off customers’ power, and a program granting workers in companies with at least 25 employees extra paid sick leave, up to 80 supplemental hours, also ended as the calendar turned to October. 

The extra sick leave could prove essential for workers who test positive for COVID and must quarantine as a result, as well as for parents who must stay home with schoolkids who get sick. Not only did the extra leave allow workers to stay afloat financially when they were unable to go to work due to COVID, it also prevented those workers from spreading the virus, helping to control the pandemic. 

As of Sept. 30, those protections were no longer in place. Newsom’s staff told CalMatters that “no efforts” were being made to extend the paid sick leave law.