Weekly unemployment benefits during COVID-19

What was the best place to have been unemployed during COVID-19?

Anthony Klan

Oct 19, 2021

It’s the global poster child for dog-eat-dog capitalism. Its healthcare is one of the planet’s most expensive, its notoriously low Federal minimum wage – at just US$7.25 an hour – hasn’t been lifted in over a decade, and in 2019 almost 40 million of its residents were receiving food stamps.

But if yours was one of the 225 million jobs that vanished in 2020 amid the COVID-19 pandemic – one of the biggest unemployment spikes in history – then, in hip pocket terms at least, there’s no place you’d have rather been.

Helped by a number of factors, not least that 2020 was a presidential election year, the newly unemployed in the United States saw their lots improved more than anywhere else.

By a long shot.

Not only that, but the US unemployed – for a short-time at least – were receiving bigger welfare cheques than the unemployed anywhere else in the world.

Tables turned

The COVID-19 pandemic, and the different responses of governments worldwide, turned the tables on some long-established norms. For example, workers in the US, Canada and Australia – where unemployment benefits are comparatively paltry in normal times – who lost their jobs, found themselves with fatter cheques than their counterparts in France and Germany, countries far better known for their welfare generosity.

And that’s even after accounting for differences in living costs between the countries.

That said, if you’re still unemployed and you’re from Seattle, Toronto, or Melbourne – as opposed to Copenhagen, Hamburg or Marseille – don’t break out the champagne (or that special tin of baked beans) just yet.

The sugar hit was temporary and with COVID-19 stimulus drying up, Nordic and European nations are bounding back to their normal positions at the top of the charts.

To be sure, comparing government schemes and social security benefits across nations is a notoriously difficult exercise. “Frighteningly complicated”, in fact, as a global expert in the field, Professor Peter Whiteford, told Compare the Market when we got in touch.

But thanks to detailed modelling by the Organisation for Economic Co-operation and Development (OECD), a group of the world’s industrialised nations; respected UK think-tank The Institute for Government; and some number-crunching of our own, we can give it a very good stab.

When comparing the lot of the newly unemployed amid the pandemic, the key factors are:

• How much a country injected in stimulus;
• Where that money went; and,
• How generous a nation’s unemployment benefits were to begin with.

But whichever way you dice it, the jaw dropper is the USA.

Source: Institute for Government

The UK’s Institute for Government has taken data produced by the OECD Tax-Benefit Web Calculator and adjusted it for stimulus measures introduced during the first three months of the pandemic outbreak, when unemployment was at its worst.

It has compared the stimulus responses of a group of OECD countries which “offer very different types of unemployment benefits during normal times”: Australia, Canada, Denmark, France, Germany, Ireland, the UK, and the US.

A good way of comparing the lot of unemployed workers is using the “replacement rate”. This simply means how much of your previous wage you can expect to receive if you become unemployed. For example, in normal times in Australia, the OECD calculations show the typical retrenched worker received unemployment benefits equal to half the full-time minimum wage. That’s a replacement rate of 0.5.

The biggest increases in replacement rates in the first stage of the pandemic were Australia, Canada, Ireland and the US. In fact, minimum wage workers in the US and Canada who lost their jobs leapfrogged those in Denmark, France and Germany when it came to how much of their previous wage they received in unemployment.

For a brief time – perhaps the first in history – the tables were turned.

Source: Institute for Government, UK

Perspective

But again, it’s little to crow about. For starters, the biggest, and most obvious, reason for the outperformance of the traditionally stingy states is that they had relatively poor benefits to begin with.

In fact, Denmark, Germany and France, where unemployment benefits are usually far more generous, didn’t increase their unemployment cheques at all when the pandemic struck. They figured it wasn’t needed. But if you found yourself in the US in the early to middle of last year, you might have found things weren’t so bad. There, the “replacement rate” soared to a massive 2.25.

In other words, a US worker earning minimum wage who lost their job was receiving 2.25 times – while unemployed – what they were earning when they were going to work each day.

The next closest was Canada, but even it didn’t quite meet a “replacement rate” of 1 – that is, where unemployment payments are the same level as wages. (For obvious reasons, the replacement rate in normal times is generally significantly below one for all countries.)

In Canada, a newly retrenched minimum wage worker received the equivalent of about 95% of their former wage in benefits. That was up from about 60% previously.

In Denmark, which offers some of the most generous unemployment benefits in the world, the lot of the newly unemployed minimum wage worker was unchanged – they could still expect to receive about 85% of their previous wage.

In Germany, retrenched workers received the same as they would have pre-COVID-19, just under 70% of their previous wage, while in France, where benefits also remained unchanged, workers could expect to receive the equivalent of just over 60% of their previous wage.

Comparing apples with apples

Of course, a number of assumptions are required. To ensure a fair comparison, we’ve settled on a single example: a newly unemployed, single 40-year-old without children who had been working 40 hours a week for at least five years and who was paid the legal minimum wage.

(For the US and Canada, where unemployment benefits and minimum wages can differ between states, we have followed the example of The Institute for Government and used Michigan and Toronto respectively. Similarly, we have used exchange rates as at June 5 last year.)

The period we have examined is from March to July last year, when unemployment was most severe.

The cause of the US unemployment benefits boom was a massive, US$600 weekly boost introduced by then President Donald Trump when COVID-19 struck.

Those Federal payments, under the so-called CARES Act, came on top of the unemployment benefits already provided by each state. (They’re also in addition to the US$1,400 stimulus cheques the US Government gave out to all but the highest paid workers).

In the US, the states provide the bulk of unemployment payments. They fund the benefit payments with levies they place on workers’ wages.

Unemployment benefits between US states can vary greatly, but no state offers as much as US$600 a week, the amount the US Government provided on the top. The average US state unemployment benefit is about US$321.

The most generous state is Massachusetts, where the maximum weekly unemployment is US$523. The US$600 bonus meant a worker there who found themselves unemployed when COVID-19 struck received up to US$1,123 a week.

The boost lasted until July 31, 2020, when it was reduced to US$300. On December 31, the US$300 payment was extended to March 14, 2021.

President Joe Biden has announced it will remain until September 30.

Unemployment benefits are lowest among the southern states (though those states also tend to take less from workers’ pay to fund the schemes). Average state unemployment benefits are lowest in Louisiana, at US$187 a week, followed by Mississippi (US$193) and Arkansas (US$220).

Like unemployment benefits, minimum wages in the US can vary dramatically between states. The Federal minimum wage, last increased in 2009, is US$7.50 an hour.

Numerous states have set their own minimum wages. In 2020, the highest was Washington D.C. (US$15 an hour), followed by Washington state (US$13.69) and Massachusetts (US$13.50). The federal minimum of $7.25 an hour currently applies in 21 states, including Louisiana, Mississippi, Tennessee, North Dakota, Utah and Texas.

Another key factor when making comparisons is how long the benefits last.

In the US, Forbes compared the states based on the unemployment benefit provided, the cost of living in each state, and how long benefits lasted. It found the least generous state was Florida (which has a high retiree population), where weekly payments averaged US$236 and only last for 12 weeks.

In most states, unemployment benefits last for between 20 and 26 weeks, according to Forbes.

Professor Peter Whiteford of The Australian National University, who specialises in examining social security differences between nations, said how long benefits lasted was a key factor when making comparisons.

For example, in contrast to the US, Australia sets no limit on how long a person can receive unemployment benefits, provided they meet certain requirements, which can include actively looking for work. While other nations, such Denmark, set time limits but they can extend to many years, Whiteford says.

He says the figures compiled by the OECD are the most reliable.

The creator of the OECD Tax-Benefit Web Calculator, OECD senior economist Dr Herwig Immervol, says it’s the most direct way of comparing “what country differences in benefits and tax provisions mean for family budgets in practice”.

However, due to lags in reporting, and the fact that COVID-19 stimulus came in different waves, the 2020 modelling to date mostly excludes the impact of pandemic responses, Immervol tells us from Paris.

This is where the analysis by the UK’s Institute for Government, and Compare the Market, fills the gaps.

Unemployment benefits in the UK are traditionally relatively modest. There, people who lost their jobs last year found themselves only marginally better off than had they been retrenched pre-COVID-19.

The OECD Tax-Benefit Web Calculator shows that amid the pandemic, a newly unemployed, 40-year-old single Brit with no children, received benefits equivalent to 30% of the average wage, up from 25% in 2019. (Note this compares the average wage, not minimum).

Whiteford said housing assistance payments were also a key factor when making comparisons, because they usually formed part of, or were directly connected to, unemployment benefits. (This analysis assumes rent payments equivalent to 500 pounds a month. That’s US$625, or AUD$900, as at July 5 last year).

For example, of the total benefits received by an unemployed 40-year-old in London, about 40% comes as “housing benefits” and the remainder is split between “social assistance” and “unemployment benefits”.

“Unemployment payments alone are generally lower in the UK and New Zealand than they are in Australia,” Whiteford told Compare the Market.

“But UK and New Zealand cover much more of a person’s housing costs, so the total unemployment benefits are higher.”

Source: Organisation for Economic Co-operation and Development6

How long a person was working before they lost their job is also a factor in many countries, and in many US states.

Another factor is prior income, particularly in much of Europe and Scandinavia, where unemployment benefits are generally closely tied to how much a person was earning – and how much they were contributing – before they lost their job.

Comparisons also differ depending on what a country’s unemployment benefits are compared against.

When using minimum wages, as opposed to average wages, or another metric such as a proportion of average wages, those countries with lower minimum wages will show a greater improvement when increasing benefits. That’s because the total benefits are coming off a lower base.

Regardless, the US, from March to July last year at least, consistently out trumps.

The Future

One-quarter of all US adults report that they, or someone in their household, lost their job due to COVID-19. The lowest paid were by far the hardest hit.

Like many nations, the US has notched up large amounts of debt in its response to the pandemic. But it appears to have worked, for now at least.

At the beginning of the outbreak, the US jobless rate hit a high of 15%, and unemployment in every state was higher than the peak during the 2007-08 global financial crisis. By March it was down to 6%.

The US Federal Reserve expects the economy to grow by 6.5% this year, up from an earlier forecast of 4.2%, and says the jobless rate could fall to 4.5% later this year.

But Reserve chair Jerome Powell says nothing is certain.

“There really are risks out there,” Powell told US broadcaster CBS in April.

“And the principal one just is that we will reopen too quickly, people will too quickly return to their old practices, and we’ll see another spike in cases.”

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Sources

1 Organisation for Economic Co-operation and Development – Health spending: https://data.oecd.org/healthres/health-spending.htm

2 Raise the minimum wage – When was the last time the minimum wage was raised?: https://raisetheminimumwage.com/question-answer/when-was-the-last-minimum-wage-increased/#:~:text=The%20federal%20minimum%20wage%20was,per%20hour%20for%2010%20years.

3 Center on Budget and Policy Priorities – A Closer Look at Who Benefits from SNAP: State-by-State Fact Sheets: https://www.cbpp.org/research/food-assistance/a-closer-look-at-who-benefits-from-snap-state-by-state-fact-sheets#Alabama

4 UN News – COVID’s led to ‘massive’ income and productivity losses, UN labour estimates show: https://news.un.org/en/story/2021/01/1082852

5 Congressional Research Service – Unemployment Rates During the COVID-19 Pandemic: In Brief: https://fas.org/sgp/crs/misc/R46554.pdf

6 Organisation for Economic Co-operation and Development – Tax-benefit web calculator: https://www.oecd.org/social/benefits-and-wages/tax-benefit-web-calculator/

7 Institute for Government – Coronavirus: how have different countries supported workers through the crisis?: https://www.instituteforgovernment.org.uk/coronavirus-support-workers-comparison

8 Ibid.

9 CNBC – The $600 unemployment boost has ended. What’s next?: https://www.cnbc.com/2020/07/31/the-600-unemployment-boost-has-ended-whats-next.html

10 United States Department of Labor – Monthly Program and Financial Data: https://oui.doleta.gov/unemploy/claimssum.asp

11 Paycor – Minimum Wage by State and 2021 Increases: https://www.paycor.com/resource-center/articles/minimum-wage-by-state/

12 Economic Policy Institute – Minimum Wage Tracker: https://www.epi.org/minimum-wage-tracker/

13 U.S. Department of Labor – State Minimum Wage Laws: https://www.dol.gov/agencies/whd/minimum-wage/state#wdc

14 Forbes – The States With The Best And Worst Unemployment Benefits – And Why They’re So Different: https://www.forbes.com/advisor/personal-finance/best-and-worst-states-for-unemployment/

15 Australia National University – Peter Whiteford: https://crawford.anu.edu.au/people/academic/peter-whiteford

16 Pew Research Center – Economic Fallout From COVID-19 Continues To Hit Lower-Income Americans the Hardest: https://www.pewresearch.org/social-trends/2020/09/24/economic-fallout-from-covid-19-continues-to-hit-lower-income-americans-the-hardest/

17 Ibid.

18 Federal Reserve System – Summary of Economic Projections: https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20210317.pdf

19 CBS News – Fed Chairman Jerome Powell: The 2021 60 Minutes Interview: https://www.cbsnews.com/video/jerome-powell-federal-reserve-economy-update-60-minutes-2021-04-11/