What Happens When Unemployment Eventually Ends?

consumer debt collection

Many state Governors have already rolled back pandemic-driven unemployment benefits, and more are set to follow suit as early as September 6th. With the Labor Department taking a back seat Governors’ decisions, millions of Americans will be losing a significant source of financial assistance.

Though many state Governors believe that ending jobless benefits will encourage workers to rejoin the labor force, the question remains as to how this loss will affect the population’s financial well being.

How the End of Jobless Benefits Will Affect Consumers

While many businesses are already seeing an increase in customer debt—along with increased commercial collection agency activity—the expiration of jobless aid could worsen consumer debt. Though the lack of a bonus check is its own issue for many Americans, the expiration of benefits creates a host of other possible hardships.:

Wages vs. Financial Assistance

Many low-income workers receive higher income through their boosted unemployment checks than they would if they returned to their jobs. When these workers gain employment, they may find themselves with the same debt issues they had pre-pandemic.

Predicting the COVID-19 Timeline

Before America truly arrives at its post-COVID economic reality, it must first address ongoing surges popping up across the country.. A surge coinciding with the loss of benefits could cause an unemployment spike like April 2020, but without the same level of assistance.

Equity Among Workers

Freelance, gig, and part-time workers were receiving checks through the PUA program—Pandemic Unemployment Assistance. While these workers will also have their benefits cut, they may find it harder to rejoin the workforce compared to hourly wage workers. Much of the mounting consumer debt may disproportionately affect groups with more freelance, gig, and part-time workers—especially those under 40.

consumer debt

The Larger Implications of Mounting Consumer Debt

The concern with growing consumer debt is the possibility of a more ominous, looming debt crisis. While some types of debt already reached crisis levels before the pandemic—like student debt—loss of unemployment income could lead to a crisis for other forms of loans.

Polls have shown that over half of all Americans with credit card debt added to their balance in 2020, with most pointing to COVID-19 as the reason. At the time, overall credit card debt was on a downward trajectory due to reduced spending and increased unemployment benefits. With the expiration of jobless financial aid, there’s a question of whether this decline will start going in the other direction.

With companies increasing efforts to recover more of their outstanding balances, it’s possible that consumers and businesses will see more debt collectors making contact post-COVID.

The Good News

Since the original wave of layoffs in 2020, there’s been a steady decline in applications for unemployment benefits. In May 2021, the total number of applications was under 500,000—a hopeful figure compared to the over 6 million applications submitted in April 2020.

While hundreds of thousands of applications is high compared to past years, the total decline suggests that a loss of unemployment benefits won’t be as severe on the population as some analysts believe..

State Alternatives to Ending Unemployment Benefits

Not all states plan to end pandemic unemployment assistance by September 6th. Some states—like Hawaii—will continue with increased benefits with tighter regulations. Other states—like Connecticut and Colorado—will continue assistance as usual, but also provide financial incentives for finding a job.

While these alternatives may not reduce business needs for a B2B commercial collection agency, a continuation of bonus checks will be helpful to those who haven’t been able to return to work. Many state Governors believe continued benefits will delay the return to the workforce, but research suggests that most workers will return to their jobs even if they receive more money from unemployment than wages.

As for consumer debt, these alternative approaches could reduce debt growth for the unemployed and those who still have reduced hours due to COVID-19. The incentives for job-seeking may be especially helpful to new hires who would have otherwise lost income by gaining employment.

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Looking Ahead to a Post-COVID America

With states ending their increased unemployment benefits, mounting consumer debt is a growing concern. Checks from the state were helping many Americans to meet their most basic needs and many aren’t sure what their personal finances will be looking like as states leave this era behind. However, the declining need for benefits suggests post-COVID debt may be manageable.

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