Unemployment benefit cuts haven’t boosted employment, report says

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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 to pandemic unemployment benefits last summer had little impact on hiring, suggesting improved funding for the unemployed hasn’t played a big role in the shortages of labor, according to the research.

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.

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

There was some debate about the extent to which enhanced unemployment benefits contributed to the hiring challenges that employers seemed to be having.

Some officials believed federal aid was preventing people from looking for work; others thought factors such as ongoing pandemic health risks and family chores (kids coming home from school, for example) played a bigger role.

An analysis by researchers at the Federal Reserve Bank of San Francisco found that states that withdrew benefits early probably didn’t experience the expected job-boosting effect. It compared July-September 2021 hiring rates in states that ended benefits versus those that kept them intact.

Hiring rose 0.2 percentage points in “threshold” states compared to those that kept the feds — a “fairly small” increase compared to average monthly state hiring rates of 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.

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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 have looked at a $600 weekly enhancement offered from March to July 2020 and found that it did not prove to be a great deterrent to returning to work.

However, some research is conflicting. 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.

A caveat to the new research from the Federal Reserve Bank of San Francisco is that it does not account for different labor market conditions in “restricted” states compared to those that have maintained federal benefits.

For example, could the low impact on hiring in threshold states be attributable to labor markets that have already rebounded to a greater degree than other states? In this case, there may be less room for a hiring boom, which may have led to muted hiring.

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

Valletta and his colleagues have investigated this point in preliminary follow-up work, he said. So far, they’ve also seen moderate hiring rates in the other half of the states (i.e. those that lost federal benefits in early September) – suggesting that eliminating benefits did not result in a large increase in hiring, regardless of the state’s relative labor. market conditions, Valletta said.

However, La Valette and the research co-authors offer another way to interpret their findings: while hiring has not increased, the evidence also does not suggest that the early reduction in benefits has hurt markets. of state work.

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

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