The month of May is going to be eventful, as either a deal on the debt ceiling will be reached (i.e., raising it) or a massive recession and possible economic calamity will strike. Or, just maybe we will get a combination of both because a giant coin or issuance of fancy debt called premium bonds will not resolve all the worries in the world about the United States no longer paying its debts from previous expenditures.
Layoffs, whether few or many, will follow pretty quickly, simply because businesses will lack access to any funds for making payroll.
And, unemployment benefits — the main mechanism available to the government for fighting a recession — will NOT be available. Despite unemployment benefits being paid for by unemployment taxes that employers pay (and Wisconsin having over $1.2 BILLION in its trust fund as of March 2023), the actual trust funds for all US states and terrotories are managed by the federal government. So, come June 1st, all of these trust funds in Wisconsin’s may no longer be accessible for paying out unemployment benefits to anyone.
The irony here is that unemployment claim-filing in Wisconsin continues to disappear. As noted previously, claim-filing in Wisconsin set a new record low in 2022, and that pattern was continuing into 2023:
In 2022, new record lows for claimants paid benefits and for initial claims filed in the state were set. Initial claims in 2022 were roughly 89% of the number of initial claims filed in 2019, and paid claimants in 2022 were under 90% of 2019 levels. And, this trend of ever declining unemployment has continued into 2023. As of week 13 of 2023, initial claims are running at around 84% of 2022 levels. So, 2023 is likely going to set still another record low for initial claims and in benefits paid to claimants.
As of week 18, initial claims in 2023 are running at 86.7% of 2022 levels, so the spring weeks of April and May seem to have hit the minimum number of initial claims in Wisconsin given the size of the state’s workforce.
In other words, unemployment claim-filing no longer practically exists in Wisconsin. Around 3,500 initial claims a week out of workforce of around 2.8 million workers for which unemployment taxes are paid — 0.1% — is a paltry amount that hardly even registers. Job growth continues to be climbing nationally, and in Wisconsin. So, the labor shortage in the state is because there is an actual shortage of workers.
If we fail to fix the debt ceiling, however, hundreds of thousands of workers will soon need unemployment benefits. Unfortunately, because the debt ceiling has not been fixed, unemployment benefits will NOT be available to all of those suddenly out of work, making the resulting recession that much worse.
Update (16 May 2023): Brookings offers a useful explainer about what the debt ceiling is, what is being done right now to pay off debts, and why not fixing the debt ceiling is BAD.