Unemployment benefit cuts haven’t boosted employment, report says

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

John Paraskevas/Newsday RM via Getty Images

State cuts to pandemic unemployment benefits last summer had little impact on hiring, suggests a recent report, suggesting improved funding for the unemployed hasn’t played a role a big role in labor shortages.

The federal government significantly expanded the social safety net for the unemployed in March 2020. It provided hundreds of dollars in additional weekly benefits to individuals and helped millions of previously ineligible people, such as gig workers and laborers. independent.

Governors in about half of the states, mostly Republicans, withdrew federal benefits in June or July 2021 — months before their scheduled nationwide expiration on Sept. 6.

The debate at the time centered on what was seen as the likelihood that increased benefits would contribute to employers’ hiring difficulties.

Some officials believed federal aid was preventing people from looking for work, while others said factors such as ongoing pandemic health risks and family chores (children coming home from school, for example ) played a larger role in the job shortage.

But an analysis by researchers at the Federal Reserve Bank of San Francisco found that states that withdrew benefits earlier didn’t have the intended effect of spurring a surge in jobs. It compared hiring rates from July to September 2021 in states that ended benefits with those that kept them intact.

Hiring increased by a miniscule 0.2 percentage points in “restricted” states compared to states that retain benefits – a “pretty small” increase considering the states’ average monthly hiring rates. about 4% to 5%, depending on the analysis.

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

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

Learn more about personal finance:
Stocks fall. What should you do?
What to do if you missed the April 18 tax filing deadline
74% of people believe they will never achieve affluent status

The hiring rate measures the number of hires in a month relative to overall employment; it serves as a “natural starting point” for assessing the impact of the policy, according to the analysis.

Previous research on the effects of pandemic unemployment benefits has largely come to similar conclusions.

An August 2021 study also found little impact on jobs and suggested that withdrawing benefits early could hurt states’ economies. Other studies looked at a weekly $600 enhancement offered from March to July 2020 and found that the added benefit did not prove to be a major barrier to returning to work.

However, some research contradicts this assessment. For example, a December article found a surge in employment among “prime-age” unemployed workers (aged 25-54) in states that opted out of federal benefit programs in June. .

According to La Valette, the varying results come down to different sets of economic data that the researchers used to examine the dynamics.

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

For example, a small impact on hiring in threshold states might have been partly attributable to labor markets that had already rebounded to a greater degree than comparable non-threshold states. In this case, there would have been less chance of a hiring boom.

It is important to keep in mind that a significant part of the population has suffered real hardship.

Robert Valletta

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

La Valette and his colleagues have investigated this point in preliminary follow-up work, he said. So far, they’ve also seen moderate hiring rates in states that lost federal benefits in early September, suggesting that the elimination of benefits hasn’t resulted in a big increase in hiring, regardless regardless of relative labor market conditions, he said.

However, La Valette and the co-authors go on to note that their findings seem to indicate that while hiring did not increase, the early removal of benefits did not harm state labor markets.

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