Aid cuts’ effects in spotlight

Jobless buy less; shortages linger

The cutoff of federal unemployment benefits in much of the United States was meant to bring a flood of workers back to the job market. So far, that flood looks more like a trickle.

A total of 26 states, all but one with Republican governors, have moved to end some or all of the expanded unemployment benefits that have been in place since the pandemic began. The governors, along with many business owners, have argued that the benefits discourage returning to work when many employers are struggling to hire.

Several recent studies, however, have concluded that the extra payments have played only a small role in this year’s labor shortages. And they found at most a modest increase in employment in states that abandoned the programs — most of them in June — even as millions of jobless workers have had to cut spending, potentially hurting local economies.

“The idea was that there were lots of jobs — it was just that people weren’t looking. That was the narrative,” said Arindrajit Dube, a University of Massachusetts economist who was an author of one of the studies. “I don’t think that story holds up.”

Data released Friday by the Labor Department pro

vided the latest evidence. It showed that the states that cut benefits have experienced job growth similar to — and perhaps slightly slower than — growth in states that retained the benefits. That was true even in the leisure and hospitality sector, where businesses have been particularly vocal in their complaints about the benefits.

Overall, the U.S. labor market has come a long way since last year, when more than 20 million people lost jobs in the span of two months and the unemployment rate jumped to nearly 15%. The economy has regained about threequarters of the jobs lost in the pandemic, and the unemployment rate has fallen to 5.4%.

Still, at the end of July, nearly 9 million people were receiving payments through two federal programs that cover people who do not qualify for regular unemployment benefits or whose regular benefits have expired. Millions more were getting a $300-a-week supplement on top of their regular benefits.

All those programs are set to expire next month unless Congress extends them, which appears unlikely. President Joe Biden on Thursday encouraged states with high unemployment rates to use separate federal funds to continue the programs, but it is unclear how many will.

Recent evidence suggests that if the benefits do end, most jobless workers will not immediately find jobs, despite a record number of available positions.

In the most detailed study to date, also released Friday, Dube and several colleagues 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.

They found that ending the benefits did have an effect on employment: In states that cut off benefits, about 26% of people in the study were working in early August, compared with about 22% of people in states that continued the benefits.

But far more people did not find jobs. The researchers had data for 19 states that ended the programs; in those places, they found that about 1.1 million people lost benefits because of the cutoff, and that only about 145,000 of them found jobs.

The researchers argue that 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.

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. They compensated by cutting spending by $145 a week — a roughly 20% 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 another 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.”

The Labor Department data released Friday told a similar story. The five states experiencing the fastest job growth in July — Vermont, Hawaii, North Carolina, Rhode Island and Alaska — have all retained at least some of the federal benefits. For example, Alaska ended the $300 weekly supplement in June but kept the other benefits.

Overall, states that have ended some or all of the benefits have experienced slightly slower job growth since April than states that have continued the benefits, although economists cautioned that the data was volatile and that the benefits were only one of many ways that the states differed from one another.

And in a study published this summer, economists at the University of Chicago and the JPMorgan Chase Institute used data from thousands of Chase customers to study the effect of the $300 supplement. Like Dube and his co-authors, they found that the benefits had a small though measurable effect on employment.

“It’s among the factors,” said Fiona Greig, co-president of the JPMorgan Chase Institute. “It’s playing a role, but it’s not this on-off switch, where if you turn it off everyone goes back to work.”