When states began cutting off federal unemployment benefits this summer, their governors argued that the move would push people to return to work.
New research suggests that ending the benefits did indeed lead some people to get jobs, but that far more people did not, leaving them — and perhaps also their states’ economies — worse off.
A total of 26 states, all but one with Republican governors, have moved to end the expanded unemployment benefits that have been in place since the pandemic began. Many business owners blame the benefits for discouraging people from returning to work, while supporters argue they have provided a lifeline to people who lost jobs in the pandemic.
The extra benefits are set to expire nationwide next month, although President Biden on Thursday encouraged states with high unemployment rates to use separate federal funds to continue the programs.
To study the policies’ effect, a team of economists used data from Earnin, a financial services company, to review anonymized banking records from more than 18,000 low-income workers who were receiving unemployment benefits in late April.
A Small Rise in Employment
Share of workers on unemployment in late April who later began working.
The researchers found that ending the benefits did have an effect on employment: In states that cut off benefits, about 26 percent of people in the study were working in early August, compared with about 22 percent of people in states that continued the benefits.
But far more people did not find jobs. In the 19 states ending the programs for which researchers had data, about two million people lost their benefits entirely, and a million had their payments reduced. Of those, only about 145,000 people found jobs because of the cutoff. (The researchers argue the true number is probably even lower, because the workers they were studying were the people most likely to be severely affected by the loss of income, and therefore may not have been representative of everyone receiving benefits.)
A Big Drop in Benefits
Share of workers on unemployment in late April who continued to receive benefits in some form.
Cutting off the benefits left unemployed workers worse off on average. The researchers estimate that workers lost an average of $278 a week in benefits because of the change, and gained just $14 a week in earnings (not $14 an hour, as previously reported here). They compensated by cutting spending by $145 a week — a roughly 20 percent reduction — and thus put less money into their local economies.
“The labor market didn’t pop after you kicked these people off,” said Michael Stepner, a University of Toronto economist who was one of the study’s authors. “Most of these people are not finding jobs, and it’s going to take them a long time to get their earnings back.”
Less Income, Less Spending
Average impact of ending federal programs on weekly unemployment benefits, earnings and spending, among people who were on unemployment in late April.
The findings are consistent with other recent research that has found that the extra unemployment benefits have had a measurable but small effect on the number of people working and looking for work. The next piece of evidence will come Friday morning, when the Labor Department will release state-level data on employment in July.
Coral Murphy Marcos contributed reporting.
Source: Economy - nytimes.com
