66% of Workers Think a Recession Will Lead to Layoffs. Here’s What You Need to Know About Unemployment Benefits

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It’s important to know what unemployment coverage might look like if you end up losing your job. 

At this point, financial experts have been sounding warnings for months about a potential recession. And while we’re not guaranteed to see economic conditions decline in 2023, it’s a possibility everyone should prepare for.

The Federal Reserve has been aggressively raising interest rates to slow down inflation. That’s making it more expensive to borrow. And higher borrowing rates could cause a serious pullback in consumer spending, leading to a recession.

Now recessions can play out in different ways. Some can be mild and short-lived. Others can be long and painful. Either way, if a recession hits in 2023, there’s a good chance it will lead to a notable uptick in unemployment.

Right now, the job market is in good shape, and unemployment levels are fairly low. But things could change if economic conditions decline. In fact, in a recent Clarify Capital survey, 66% of respondents say that a recession would likely cause layoffs at their company.

Now the good news is that if you’re laid off from your job through no fault of your own, you’re generally entitled to receive unemployment benefits. But before you bank too heavily on those as a fall-back option, do consider these points.

1. Unemployment benefits won’t replace your paycheck in full

It’s a big myth that if you have to go on unemployment, the weekly benefits you’ll receive will be enough to take the place of your missing paycheck. In reality, your unemployment benefits probably won’t replace much more than half of your missing income if you’re an average earner. And if you’re a higher earner, those benefits might replace less of your income, percentage-wise. That’s because states have a weekly maximum benefit that applies whether you earn $50,000 a year or $250,000.

For this reason, it’s important to have an emergency fund to tap in case your unemployment benefits fall short on providing you with the income you need to cover your bills. In fact, ideally, you should have enough money in your savings account to pay for at least three months of essential bills.

2. Unemployment benefits may not kick in right away

You might file for unemployment benefits as soon as you’re laid off at work. But that doesn’t mean you should expect that money to start hitting your checking account a few days later.

It can take time to process an unemployment claim even during periods when job loss is low. And during a recession, when jobless claims pick up, you may be subject to longer delays than usual. That’s yet another reason why it’s essential to have money in savings — so you can keep up with your bills before your unemployment benefits start to arrive.

3. You can’t collect unemployment if you’re self-employed

Maybe you have different companies you work for on a contract basis. If a recession hits, they might choose to stop using your services to cut costs. And in that case, you’ll generally be out of luck, since people who are self-employed usually are not entitled to unemployment benefits.

Now you may remember that freelance workers were able to collect unemployment in 2020. But that was due to a special provision that was put in place by lawmakers due to the extreme nature of the unemployment crisis that erupted in the spring that year. In most cases, those who are self-employed don’t get unemployment benefits — which is all the more reason to pad your emergency fund if you aren’t a salaried worker.

If a recession strikes in 2023, the unfortunate reality is that many people could find themselves out of job. Knowing what to expect from unemployment benefits could help you better prepare for that possibility.

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