When Aaron Garza was dismissed this week from his job as a parts specialist at a Toyota dealership in Grand Rapids, Michigan, he joined a tidal wave of unemployed people swamping systems to help them and straining state finances to the breaking point.
On Monday, Garza went to Michigan’s unemployment website and tried logging on to apply for benefits electronically. After 30 minutes, he was able to sign on, but by the time a verification code was sent to his phone 25 minutes later, he had already given up. As of Tuesday afternoon, he still hadn’t been able to get through.
The 24-year-old and his girlfriend, who also lost her job at a dealership, are confident they can make rent on the first of the month. After that, things could get dicey. “It will definitely lead to bigger issues very soon if we don’t get unemployment,” Garza said.
More than 108,000 people filed for unemployment benefits in Michigan last week, 20 times more than normal. Across America, state-run insurance systems are buckling under the weight of the new coronavirus’ economic fallout. National jobless claims last week saw the biggest spike since the aftermath of Hurricane Sandy eight years ago, jumping 33% to 281,000. This Thursday’s figure could be as high as 3 million — quadruple the record set in 1982 — according to S&P Global Ratings.
Other countries are experiencing surges as the world beyond Asia deals with the swelling tides of Covid-19 cases. Norway on Tuesday posted the highest unemployment rate since World War II. Canada last week saw 20 times as many people apply for benefits as the same period a year ago, and that figure is expected to double this week.
Despite balky websites and frustrating hold times, states have the administrative capacity to process the millions of claims, said Christopher O’Leary, a senior economist who studies public employment policies at the W.E. Upjohn Institute in Kalamazoo, Michigan.“There’s going to be some waiting, but people are going to get benefits; it’s going to be done,” he said.A bigger question is the funding. There will be some federal help, thanks to the stimulus bill passed early Wednesday: Unemployment insurance would be extended to four months, benefits would be raised by $600 a week and more workers would be eligible.
Still, as many as 21 states and U.S. territories could see their unemployment reserve funds go into the red if the U.S. experiences a severe recession, according to a study O’Leary co-authored this month.That may force some states to take out loans from the U.S. Treasury, saddling them with more debt. Some states that issued bonds for unemployment during the 2007-2009 recession were still paying them back as of December 2018, according to O’Leary’s study.
“We’ve already seen some states start to make budget cuts and use their rainy-day funds and reserves,” said Brian Sigritz, director of state fiscal studies at the National Association of State Budget Officers. “There is also the possibility of tax increases down the road.”
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SOURCE: Bloomberg, by Gabrielle Coppola, Mallika Mitra and Margaret Newkirk