The Stimulus Sugar HIGH

The Stimulus Sugar HIGH

By Dr. John Stapleford

Center for Economic Policy and Analysis

December 28, 2020

In response to COVID-19, the Federal government enacted the Pandemic Emergency Unemployment Compensation program of the CARES Act. This provided an additional $600 Federal stimulus funds automatically to weekly unemployment benefits received between March 29 and July 25, 2020. As expected, Delawareans acted rationally and left the unemployment rolls when the extra $600 a week ceased.

Between July and November of 2020, the Delaware labor force (those adults working or actively looking for work) dropped 6% while the total Delawareans employed stayed flat. Simultaneously, the total unemployed Delawareans dropped by 54%, more than 28 thousand persons. About 8 out of 10 of those who left were classified as “part-time for economic reasons.”

Consequently, Delaware’s unemployment rate went from above the nation to below. November’s rates were 6.7% in the U.S. and 5.1% for Delaware. As the economic research literature has shown consistently, one way to lower the unemployment rate is to decrease the weekly benefits.

Meanwhile, starting in mid-April, $2,000 stimulus checks began to flow out to households and continued until July. Again, Delawareans being rational, treated the stimulus checks for what they were: a one-time windfall. Between April and July, total employment in Delaware jumped up by 34 thousand, and since August, total Delaware employment has been essentially flat.

Infusions of cash into an economy may generate an economic "sugar high," but they don’t change the essential underlying factors that are causing a recession.