BlackRock Investment Institute

Macro insights

The importance of fiscal policy

Monetary and fiscal policy has played a key role in propping up the private sector. Fiscal support is especially important for the labor market, with different manifestations across economies. Europe has supported workers with short-term work or furlough programs, while the U.S. has focused on paying enhanced unemployment benefits. The chart below illustrates the key role of unemployment benefits in bridging the income gap in the U.S. The U.S. labor market is slowly improving. Most of the increase in unemployment is considered temporary, and the overall unemployment rate has fallen from peaks and labor participation has gone up.

U.S. wages and unemployment benefits, 2008-2020

Sources: BlackRock Investment Institute, U.S. Bureau of Economic Analysis and the U.S. Treasury, with data from Haver Analytics, Sept. 2020. Note: The green line shows annualized wages and salaries for U.S. workers. Data up to July are from the BEA personal income report. The dotted figure for August is projected using the monthly change in income calculated from the August employment report. The orange line combines wages, salaries and unemployment insurance (UI). The UI data up to July are from the BEA report, and projected for August based on high frequency data from the Daily Treasury Statement.

We still see risks of a premature withdrawal of policy support. The additional federal unemployment benefits expired in July and little progress has been made to extend the program. We now see the outcome of negotiations of a new fiscal package as increasingly binary: either a sizable package or nothing at all before the November election.

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