The early end of unemployment benefits may not have the desired effect
FREDERIC J. BROWN | AFP | Getty Images
Job search has been cut in 12 states that have pulled out of federal unemployment programs in recent weeks, suggesting the policy may not work as expected, according to a new analysis.
States have ended the benefits of the pandemic era – including an additional $ 300 per week – since June 12, about three months before they expire on September 6.
They are the first of a total of 25 states, all led by Republican governors, to withdraw from programs to encourage recipients to seek work amid record-breaking job vacancies.
Generous benefits encourage staying home and make it difficult for companies to hire, say governors. Critics say benefits don’t have a big effect on workers’ decisions and that cutting funds will hurt the economy by reducing household spending.
However, workers in the dozen states that have already cut federal aid are looking for jobs less vigorously than in other fields, according to an analysis released Tuesday by the employment site Indeed.
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This is the opposite dynamic to what one would expect, given the political intention to terminate benefits early, according to AnnElizabeth Konkel, economist at Indeed.
“People in these states are less likely to search than your average job seeker right now,” she said.
Job searches are about 4% lower than the national average in Alaska, Iowa, Mississippi and Missouri, which ended benefits on June 12, according to data from Indeed.
Activity is 1% lower in eight states – Alabama, Idaho, Indiana, Nebraska, New Hampshire, North Dakota, West Virginia and Wyoming – which ended it on June 19.
“You would think they would be looking for more,” Konkel said. “At least right now, it pushes back the idea that federal unemployment benefits are the main reason there is friction in the job market.”
The data, measured by clicks on job postings, could change in the coming weeks, she said.
It’s hard to say for sure what effect the improved benefits have on the job market without allowing more time to pass, according to Michael Strain, director of economic policy studies at the American Enterprise Institute, a right-wing think tank.
But it is likely that the labor market has recovered to a point where the weekly supplement of $ 300 is having a negative effect, he said.
“The challenge for public policy is to balance the good and the bad,” Strain said.
“In June 2021, I think the generosity unemployment benefits we are offering them are doing more harm than good – to workers and to the economy as a whole,” he added.
$ 300 per week
Unemployment benefits usually replace around half of the pre-layoff wage of a worker.
Congress increased weekly aid by $ 600 at the start of the Covid pandemic. Lawmakers have also paid funds to the long-term unemployed and to groups like the self-employed and concert workers who are generally not eligible for state benefits.
They’ve since cut the weekly subsidy in half – to $ 300 a week – and made federal benefits available until Labor Day.
According to an estimate by University of Chicago economist Peter Ganong, that extra $ 300 earns about 42% of beneficiaries as much or more than their previous salary. (They are mostly low-paid workers.)
“It makes it a bad financial deal to get a job for a lot of the workforce,” Strain said.
Labor market participation has remained relatively stable, a concern especially given that there were a record number of vacancies in April, he said.
However, economists have cited reasons other than the benefits to labor market dynamics.
On the one hand, Covid’s health concerns are likely forcing some to stay home, they said.
A highly contagious variant of Covid has accounted for a larger share of cases in the United States, and only 56% of American adults are fully vaccinated against Covid-19. The Biden administration said on Tuesday it would likely miss its goal of having 70% of adults vaccinated by July 4.
Child care may continue to be a challenge for families if the daycare remains closed permanently, if schools have not resumed in-person learning, or if summer camps are not at full capacity.
Restarting the economy (and the job creation associated with it) isn’t as easy as flipping a switch, economists said.
“I don’t think that’s the whole puzzle,” Konkel said of the enhanced benefits. “I think it’s a piece of the puzzle.”
Some also question the notion of a labor shortage.
“No one is saying it’s a ‘customer shortage’ if companies only offer high prices and bad service,” Bharat Ramamurti, deputy director of the National Economic Council, said in a tweet. “Still, some say it’s a ‘labor shortage’ if companies offer only low wages and bad benefits.”
The Federal Reserve Bank of San Francisco estimated that the $ 300 supplement had a “small but likely noticeable” impact on job search and worker availability in early 2021.
If 7 out of 28 unemployed people receive job offers they would normally accept, the availability of the additional $ 300 per week pushes 1 of the 7 to decline the offer, according to its projection.
Beyond the $ 300, most Republican states also end pandemic unemployment assistance for the self-employed and gig workers ahead of schedule. These workers lose their benefits entirely.
“I don’t think it’s the right thing to do politically to bring these workers down to zero,” Strain said.
Instead, eligibility for these benefits should gradually tighten and workers should be warned, he said.