Early end of federal unemployment benefits does not put people to work

About half of U.S. states withdrew federal funds early for months of unemployment to encourage unemployed residents to find work. But growing evidence shows that the political gamble has yet to bear fruit.

Twenty-six states have announced plans to end federal benefits related to the pandemic starting in May. They officially pulled out in waves in June and July.

UKG, a payroll and time management company, found that changes among hourly workers in these states were increasing at about half the rate that states that continued to benefit – the reverse trend from what one might s ‘wait.

Specifically, in states that ended benefits, shifts increased 2.2% from May to July; they rose 4.1% in the others which kept federal aid intact, according to the UKG analysis.

“Unemployment benefits were not the thing that kept people from going to work,” said Dave Gilbertson, UKG vice president. “There are other elements, especially in their personal life, which make it very difficult to return to work.”

It doesn’t appear that differences between state economies or labor markets influenced the dichotomy, as the two groups were experiencing similar growth earlier this year, Gilbertson said.

Likewise, employment fell 0.9% in states that ended federal benefits between mid-June and mid-July, but increased 2.3% in states that retained them, according to data released this week by Homebase, another payroll and time management company.

The analysis looked at the percentage change in the number of employees working from April 2021.

UKG and Homebase figures are early indicators. It will likely take another month or two of employment data and other labor market data before economists can further assess the effectiveness of state policies, they say.

“It’s an early vision, there’s no question about it,” Gilbertson said. “It takes a while for people to be able to reorganize their personal lives to start a new job.

“But I think that’s a pretty strong directional indicator.”

The high frequency data is consistent with other recent analyzes.

Indeed economists, using proprietary job search data, and Arindrajit Dube, professor of economics at the University of Massachusetts Amherst, who studied recent survey data released by the US Census Bureau, did also found no evidence that state policies were pushing people back to work.

“[Data] suggest that there is no clear evidence that [unemployment] leaving the programs early resulted in a significant increase in job growth or job search, ”said Nick Bunker, director of economic research for North America at Indeed Hiring Lab.

The federal programs in question were created by the CARES Act in March 2020, as millions turned to the unemployment system amid mass layoffs.

They increased the amount of weekly allowances (currently $ 300 per week) and offered assistance to workers who are generally not eligible, such as the long-term unemployed and concert workers, the self-employed, time workers. partial and freelancers.

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Discussions about labor shortages – and the role of expanded benefits in them – began in earnest following the April jobs report. The US economy created 269,000 new jobs this month, about a quarter of what economists had predicted.

Montana was the first of 26 states to announce its withdrawal. The American Rescue Plan offers federal assistance until September 6.

Instead of extended benefits, Montana Governor Greg Gianforte offered residents a one-time back-to-work bonus. A handful of other states also offered such bonuses.

“The vast expansion of federal unemployment benefits is now doing more harm than good,” Gianforte said on May 4. “We must encourage the Montanais to re-enter the labor market.”

Job growth in the United States has accelerated since May, reaching 850,000 in June. The Bureau of Labor Statistics releases its July report on Friday; economists expect it to post 845,000 new jobs.

Some economists argue that factors related to the pandemic, not unemployment benefits, are the main reasons workers may not return to the workforce as quickly as expected.

For example, parents may still not have adequate child care; those who cannot work from home can still be cautious for health reasons; workers may have quit their jobs or changed industries during the pandemic; and baby boomers may have taken early retirement and have no plans to return.

The delta variant threatens to further complicate the recovery. Many states that have withdrawn federal support also have lower Covid vaccination rates, Bunker said.

“Especially now with the delta variant, it could push back labor markets in these states,” he said.

Nationally, fewer unemployed people reported the pandemic as a reason not to urgently seek work in July compared to June, according to an Indeed survey released Wednesday.

Respondents who were unemployed ranked unemployment benefits as the last factor preventing them from urgently seeking work. They fall behind a financial cushion, have a salaried spouse, family responsibilities and fears of Covid.

With the extra $ 300, nearly half of the unemployed (48%) earn as much or more money on unemployment benefits than their lost paychecks, according to a recent article published by the JPMorgan Chase & Co. Institute.

These additional funds had little impact on job search but did not significantly dampen the labor market until mid-May, according to economists Fiona Greig, Daniel Sullivan, Peter Ganong, Pascal Noel and Joseph Vavra , who wrote the analysis.