Ending unemployment benefits early didn't help U.S. states very much
States that ended pandemic-era unemployment programs this summer saw modest job gains, but not enough to offset the reduction in spending that the early termination caused.
One in 8 workers who lost some or all of their benefits in the 19 states that ended the unemployment programs in June found a new job by August 6, according to new research by a team of economists who analyzed banking data of more than 18,000 low-income workers who got benefits.
Around 24.9% of workers who were unemployed in April found a job by July in states that opted out of the programs, while 21.5% of workers did in states that kept the unemployment benefits intact, the paper found.
“Early withdrawal led to a fairly modest increase in job findings, ”Arindrajit Dube, an economics professor at the University of Massachusetts Amherst and one of the authors of the paper, told Yahoo Money. “This [also] led to a very sharp reduction in overall income.”
The 19 states that canceled the benefits in June saw a $4 billion reduction in federal unemployment payments and a $2 billion drop in consumer spending. At the same time, only $270 million in new earnings came in, representing just 7% of the unemployment benefits that were lost.
“The main question was: Did pushing [the expiration] earlier to June help the local economy? And that answer seems to be mostly no,” Dube said. “That's a net loss for those state economies, because this was federal dollars going into those states.”
‘The $300 boost really is not the big part of the story here’
Twenty-six states cut off the extra $300 in weekly benefits this summer before the federal expiration, while 22 also canceled the Pandemic Unemployment Assistance (PUA) and Pandemic Emergency Unemployment Compensation (PEUC) programs. Many of those governors blamed the unemployment programs, specifically the extra $300 of weekly benefits, for labor shortages.
But the early cancellation of the $300 boost didn’t lead to much of the job gains in those states.
Most of the unemployed workers who found jobs were on PUA — the program for workers like contractors and freelancers who don’t normally qualify for regular unemployment insurance — and PEUC — the program that provides extra weeks of benefits.
“The $300 boost really is not the big part of the story here,” Dube said. “Ending PEUC and PUA is really the bigger part.”
Nationwide, those three federal unemployment programs are set to expire on September 6.
Based on the analysis of the early cutoff in the 19 states, the researchers suggested that the federal expiration could lead to a half million new jobs in September and October combined, while the majority of the 4 million workers losing benefits would take even longer to find jobs.
The paper also estimates an $8 billion drop in spending during September and October.
This week, the Biden administration called for states with high unemployment to use leftover stimulus funds to extend some of the pandemic-era unemployment programs that are set to expire in early September.
“Pulling the creation of around half a million jobs ahead to September and October... has to be weighed against the large drops in consumption for a much larger group of workers losing benefits,” Dube said. “Beyond the impact on family budgets and human welfare, the spending reductions… is also likely to lead to slower employment growth.”
Denitsa is a writer for Yahoo Finance and Cashay, a new personal finance website. Follow her on Twitter @denitsa_tsekova