Reductions in unemployment benefits did not spur jobs, the report says

A “We’re Hiring” sign hangs on the front door of a toy store in Greenvale, New York, on September 30, 2021.

John Paraskevas / Newsday RM via Getty Images

State cuts in pandemic unemployment benefits last summer had a small impact on employment, suggesting that improved funding for the unemployed did not play a major role in labor shortages, according to a recent report.

The federal government greatly expanded the social safety net for the unemployed in March 2020. It offered hundreds of dollars in additional weekly benefits to individuals and provided assistance to millions of formerly ineligible people, such as concert workers and the self-employed.

Governors in about half of the states, most of them Republican, withdrew federal benefits in June or July 2021 – a few months before their planned nationwide expiration on September 6th.

The debate at the time centered on what was seen as the likelihood that the benefit increase was contributing to employers’ employment challenges.

Some officials believed that federal assistance deterred people from seeking work, while others argued that factors such as ongoing pandemic health risks and family care (e.g., children returning home from school) played a larger role in the job crisis.

But an analysis by researchers at the Federal Reserve Bank of San Francisco found states that withdrew benefits early did not experience the intended effect of inciting a large increase in jobs. It compared employment rates from July to September 2021 in the states that completed benefits with those that kept them intact.

Employment increased a small 0.2 percentage points in the “cutoff” states compared to the benefit-conserving states – a “quite small” increase considering the states’ average monthly employment rates of around 4% -5% according to the analysis.

In other words, if a state that maintained federal benefits had an employment rate of 4.5%, a state that cut them would have had a rate of 4.7%.

“It would be largely imperceptible,” said Robert Valletta, senior vice president and associate director of research at the Federal Reserve Bank of San Francisco, who co-authored the analysis.

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The employment rate measures the number of employments during a month in relation to the total employment; it serves as a “natural starting point” for assessing the political impact, the analysis said.

Previous research into the effects of pandemic unemployment benefits has had largely similar results.

A study in August 2021 also found little impact on jobs and suggested that an early withdrawal of benefits could hurt state economies. Other studies have examined a $ 600 weekly improvement offered from March to July 2020 and found that the added benefit did not prove to be a major obstacle to returning to work.

However, some studies contradict this assessment. For example, a December paper found a large increase in employment among “prime age” unemployed workers (ages 25 to 54) in states that opted out of federal benefit programs in June.

Different results boil down to different economic data sets that researchers have used to study the dynamics, according to Valletta.

One caveat to the San Francisco Fed’s report is that it does not take into account different labor market conditions in the “cutoff” states compared to those that maintained federal benefits.

For example, a small employment impact in cutoff states may in part have been attributed to labor markets that had already returned to a greater extent than comparable non-cutoff states. In that case, there might have been less chance of an employment boom.

It is important to remember that a meaningful fraction of people suffered real difficulties.

Robert Valletta

senior vice president and associate director of research at the Federal Reserve Bank of San Francisco

Valletta and his colleagues have studied this point in the preliminary follow-up work, he said. So far, they have also found subdued employment rates in the states that lost federal benefits in early September – suggesting that the elimination of benefits did not cause a large increase in employment regardless of relative labor market conditions, he said.

Valletta and co-authors, however, go on to note that their findings seem to indicate that, although employment did not rise sharply, the early benefit threshold did not harm states’ labor markets.

“But it’s important to keep in mind that a meaningful fraction of people suffered real hardship as a result,” Valletta said.

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