Delta variant might be a reason to extend unemployment benefits, say economists

The rapidly spreading delta variant of Covid-19 may be reason for Congress to extend federal unemployment benefits past their expiration in early September, according to some labor economists.

Rising Covid caseloads, largely the result of the more transmissible virus strain, threaten to undermine the U.S. economic recovery at around the same time that federal benefits are supposed to end, they said.  

Local outbreaks may lead consumers — both vaccinated and unvaccinated — to curtail in-person activities like dining at restaurants, and lead parents to stay home if some schools adopt remote learning in the fall, for example, economists said.

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“It’s certainly possible we could have another round of economic contraction in certain areas if there’s an outbreak,” said Eliza Forsythe, an assistant professor and economist at the University of Illinois. “And the unemployment system won’t be there for people the way it’s been over the past year.”

This is, of course, a hypothetical scenario. And there’s been little indication of political will to continue benefits past their expiration Sept. 6.

Around half of states, largely Republican, have already withdrawn from the federal unemployment programs months early, claiming benefits were keeping recipients from returning to work.

But the dynamic is one Congress should be considering given recent Covid statistics, some economists believe.

“We should be thinking more about these what-ifs than we are right now,” according to Arindrajit Dube, an economics professor at the University of Massachusetts Amherst.

The seven-day average of newly confirmed Covid cases jumped to more than 26,000 as of July 14, double the sum two weeks earlier, according to the Centers for Disease Control and Prevention.

The CDC estimates 58% of recent U.S. cases were due to the delta variant, which is more contagious than other strains. In some regions, like Iowa, Kansas, Missouri and Nebraska, the variant accounts for almost 90% of new cases, according to the CDC.

White House chief medical advisor Dr. Anthony Fauci said in June that the delta variant is “currently the greatest threat in the U.S. to our attempt to eliminate Covid-19.”

“I think most of our economic policy has been predicated on a status quo of the pandemic,” Dube said. “Pandemic economics is not necessarily over.”

Soaring caseloads were the reason Congress initially created the pandemic-era benefit programs in March 2020, via the CARES Act.

The unemployment system expanded significantly, giving assistance to those who’d exhausted state benefits and to those who don’t ordinarily qualify for state aid, such as the self-employed, gig workers and parents who had to care for kids at home.

However, economists are quick to point out that the current situation is different. Last year, Covid vaccines weren’t available; now, almost 60% of American adults are fully vaccinated. So far, the delta variant seems to be spreading largely among unvaccinated individuals.

“If that’s the case, then extending the [unemployment] program wouldn’t be worthwhile,” Michael Farren, an economist at George Mason University’s Mercatus Center, said. “You don’t need to extend the program, you just need more vaccinations.”

Extending federal benefits could be damaging to the economy, if the policy leads some workers to delay returning to the labor force, for example, Farren said. The risk of businesses automating certain jobs also grows the harder it is for them to fill a role, he said.

But there are some groups, like children under age 12, who can’t get a vaccine even if they want one, Dube said.

Outbreaks are likely to be more localized among areas with relatively low vaccination rates, Dube said. But in Los Angeles County, for example, officials said Thursday that masks are required indoors regardless of vaccination status due to the delta variant.

Such mitigation measures may lead some residents, even vaccinated ones, to be more cautious about visiting indoor restaurants, bars, cafes and movie theaters, for example, which could lead to more layoffs, Dube said.

“People across the country did seem to reduce in-person interactions when the virus was spreading a lot,” Forsythe said. “I think there’s no reason not think that won’t happen again.”