The multiple rounds of federal stimulus checks provided succor to million through the long months of the pandemic and later when the economy was too shattered to provide for millions of Americans. The world economy had slipped into a deep recession and the stimulus check proved to be a life savior for households across America.
The funds also helped stabilize the economy and prevented a deep and prolonged recession similar to the Great Recession between 2007 and 2009 after the bursting of the US housing bubble and the global financial crisis.
The labor market was reshaped by the pandemic, more than any single event since the Great Recession of 2007-2009 and the accompanying financial panic.
Government data reveals that employers shed close to 20 million jobs between March and April 2020, and it was some time before payroll employment recovered to pre-pandemic levels.
Workers quit jobs at a record pace. This was more evident in low-paid sectors that included food and retail service. Many employees scrambled to bring in replacements with onuses and wage raises.
But though there was a wage gain, it was unevenly distributed across the workforce. Workers in some industries and sectors witnessed far lesser gains than those in others.
But the real purchasing power has eroded sharply under the onslaught of high inflation. The accommodation and food service sector that included hotels, restaurants, and bars revealed the biggest increase in average weekly wages since the second quarter of 2020, and much of the sector was either shut down or drastically curtailed due to the pandemic.
There was an 18.4% rise in the average wages in this sector and reached %482 a week. This happened after it had seen a drop of 4.9% between the second quarter of 2019 to the second quarter of 2020.
Real Wage Growth Negated By Rise In Inflation
But the sudden end to federal support left Americans in the lurch even as inflation crept up to ultimately touch record highs. It led to record prices for every essential commodity from groceries to gasoline. The price of utilities and rent and mortgage rates moved up rapidly.
For the first time in decades, Americans were faced with the prospect of negative growth in wages. Despite a 3.5% rise in wages post-pandemic, Americans were earning less in real terms as inflation crossed the 9% mark.
The federal government provided ample support during the pandemic period and its aftermath. The successive economic impact payments directly to households ensured that people had food on the table despite a total disruption in regular income. They could pay their rent, and avoid defaulting on their mortgages and credit card payments. People even managed to save a part of the money.
The sustained infusion of funds also ensured that the economy did not founder. The billions pumped in ensured that people continued to keep the economy afloat through purchases and prevented a deep and prolonged recession.
The funds to businesses and other organizations ensured that workers continued to be paid, and production continued even if it was curtailed and even totally stopped in various sectors.
Record Inflation Reveals The Need For More Stimulus Checks
The increase in the inflation rate coincided with the declaration of the stimulus check that came about with the signing of the American Rescue Plan Act in March 2021. It breached the 8% mark at the turn of the year and peaked at 9.1% in June 2022, the highest after November 1981.
prices of all essential goods from groceries to gasoline went through the roof as people struggled to survive as the real value of wages went down across sectors for the first time in decades. This took place despite pre-pandemic wages seeing a generous growth of around 3.6%.
But with inflation rates staying between the 8% to 8.5% mark, it meant that people were getting way less value for their dollars than in the period immediately before the pandemic.
States Emerge As An Alternative To Federal Support
With federal stimulus checks a fatality to Washington politics, states, that had so far been receiving support from the federal government now turned into benefactors. The inflation has ensured that people were earning way less in real terms after the pandemic than they did before, despite a rise in wages.
The strong economic growth in the last two quarters of 2021 also ensured that most states had a healthy surplus in their kitty. And the Rescue Plan funds were also substantial and did not come with any restrictions on spending.
The states also have the advantage that the Rescue Plan comes with few riders. The only one of note is that the states are obligated to commit the Stimulus Check funds by 2024 and ensure that they are spent by 2026. All remaining unused funds will revert to the federal administration.
The state support has varied both in the way it has been provided and in the amount. Many have gone for state stimulus checks either transferred directly to accounts of individuals or through paper checks and debit cards sent through the US Postal Service.
Other states have gone for other forms that include income tax rebates, and tax holidays on particular products, mainly gasoline or food items. Some states have also opted for pre-paid debit cards to cover the cost of gasoline and commutation.
California is among the latest states to start sending money to residents. Despite passing the bill in June 2022, Gov. Gavin Newsom’s administration waited for 4 months before the funds began going out starting October 7.
The Stimulus Checks are expected to continue till January 14, 2023, though the bulk of the payments will be sent by November 2022. Around 23 million residents of the states will benefit from the stimulus check that will give up to $1,050 to families based on their state-adjusted gross income for 2020.
Called the Middle-Class Tax Rebate, the stimulus check will go out to individuals with an AGI of up to $250,000 and a joint income of up to $500,000. Individuals with an AGI of $75,000 or less will get $350, while joint filers with a combined income of $150,000 with get $350 each. Both individuals and joint filers are eligible for another $350 if they include dependents. Thus joint filers in this income tier with a dependent stand to gain as much as $1,050, the highest possible under this round of California stimulus checks.