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Cuts to unemployment benefits didn’t spur jobs, says report


On Sept. 30, 2021, a sign reading “We are Hiring” hangs at the entrance of Greenvale’s toy shop.

John Paraskevas/NewsdayRM via Getty Images

According to research, state reductions in the pandemic unemployment benefit last summer did little to affect hiring. It suggests that enhanced funding for unemployed was not a major factor in labor shortages.

In March 2020 the federal government expanded social safety nets for those who are jobless. They offered thousands of dollars more weekly to the individuals, and helped millions of people who were previously not eligible like self-employed workers or gig workers.    

The governors of about half the state, majority of which are Republican, govern. withdrew federal benefits in June or July 2021 — a few months before their scheduled expiration nationwide on Sept. 6.

It was debated how much increased unemployment benefits had contributed to the hiring problems employers were having.

Officials thought that people were prevented from seeking work by federal assistance. However, others believed factors such as continuing pandemic risk and familial care obligations (kids at school) played a larger role.

n analysisThe Federal Reserve Bank of San Francisco researchers found that early withdrawals of benefits didn’t cause the expected effect of inducing jobs. The study compared the hiring rates in states that had ended their benefits to those who kept them.

Hiring picked up by 0.2 percentage points in the “cutoff” states relative to those that kept the federal funds — a “quite small” increase compared to states’ average monthly hiring rates of about 4%-5%, according to the analysis.

To put it another way, if a state maintained federal benefits, they would have a 4.5% rate of hiring, while a state cutting them would have a 4.7% rate.  

Robert Valletta (senior vice president, associate director of research, Federal Reserve Bank of San Francisco), co-authored this analysis.

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The “hiring rate” measures how many people are hired in a given month relative to total employment. It is a starting point for assessing the impact of policy, according to the analysis.

Previous research regarding the effects of pandemic unemployment has generally yielded similar results.

Another study will be done in August 2021. found little impact on jobsThe study suggested that the early withdrawal of benefits could harm state economies. Studies have also examined the $600 weekly increase offered between March and July 2020. They found that it wasn’t a significant disincentive for returning to work.

But there are some contradictions in the research. For instance, paperFrom December, there was a significant uptake in the employment of “prime-age” workers aged 25 to 54 in states which opted out from federal benefits programs in June.

Valletta says that the reasons for different results are due to different data sets used by economists to study this dynamic.

However, the Federal Reserve Bank of San Francisco has a caveat in its new research: It does not account for the different labor markets conditions of the states that have cut off federal benefits compared to those that retained them.

Perhaps the slight hiring decline in states that are cut off could have been due to weaker labor market conditions than those of other states. There might not be enough room to hire a lot, so there may be fewer opportunities for hiring.

Remember that some people have suffered severe hardship.

Robert Valletta

Associate director of Research at the Federal Reserve Bank of San Francisco, Senior Vice President

Valletta said that he and his fellows have done preliminary follow up work to confirm this. So far, they’ve also found subdued hiring rates in the other half of states (i.e., those that lost federal benefits in early September) — suggesting the elimination of benefits didn’t cause a big pickup in hiring regardless of the state’s relative labor market conditions, Valletta said.

Valletta and his research co-authors provide an alternative way of understanding their findings. While there wasn’t a surge in hiring, the evidence does not suggest that cutting benefits too early hashacked the state’s labor market.

Valletta explained that “but it’s important not to forget that some meaningful fraction people suffered real hardship because of this.”