US unemployment is driven by a lack of employer demand, not an unwillingness to work

Jason Furman (PIIE)

July 14, 2020

US unemployment is driven by a lack of employer demand, not an unwillingness to work

In May 2020, there were 3.9 unemployed people for every job opening in the United States, a significant increase from 0.8 per job opening in February. Employer demand for workers fell as COVID-19 lockdowns forced businesses to close and customers altered their spending habits because of financial or health concerns.

An optimal unemployment insurance system balances financial assistance and work disincentives. Despite the substantial expansion of unemployment insurance eligibility through the CARES Act’s Pandemic Unemployment Assistance (PUA), many individuals either are still ineligible for benefits even with the CARES Act’s expanded eligibility or are seeking the longer-term security of a job, ready to be hired regardless of the additional $600 per week from Federal Pandemic Unemployment Compensation (FPUC).

With US unemployment still at historically high levels, unemployment insurance can and should be generous in terms of both amount and duration in order to replace lost income, stimulate demand, and prevent more business closures. As the economy recovers, the tradeoffs between supporting the unemployed and disincentivizing work will change. Instead of tying expanded benefits to an arbitrary, fixed length of time, which might be too long or too short, a better system would adjust the generosity of unemployment insurance with the state of the economy.

This PIIE Chart was adapted from Jason Furman’s Policy Brief, "US Unemployment Insurance in the Pandemic and Beyond.”

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