End Of US’s Extra Unemployment Benefits Predicted To Do Little To Boost The Labor Market

According to studies by economists and industry experts, the termination of additional federal jobless benefits for millions of Americans in September was always unlikely to give a major boost to the US labor market. It appears that this prediction has come true through a series of different events. 

Prior to the expiration in September, which left more than 7.5 million people without access to increased pandemic-related benefits, jobless individuals had received an additional $300 per week from the federal government in addition to state assistance this year.

The government benefits have been controversial politically, with many Republican leaders claiming they have discouraged workers from returning to the workforce and created a national labor shortage, impeding economic recovery.

In June, 22 states removed the supplementary payments, bringing the total to 26 by midsummer, resulting in a natural experiment given that the other states maintained them. 

According to an examination of monthly data from the US Department of Labor, states that terminated assistance early did not see quicker employment growth and no extra contracts of employment than those that chose to keep extra help coming.

The government top-up was $600 per week for most of 2020, with gig workers and other self-employed or part-time people getting help alongside those with health-related job restrictions. The assistance totaled $850 billion between March 2020 and August 2021.

The national benefits expiration happened at a critical juncture in the labor market recovery. A run of positive employment reports was cut short in August, when just 235,000 new jobs were added. This was a substantial slowdown compared to the nearly one million jobs created in both June and July, putting the focus on what is preventing individuals from returning to work.

Some studies have shown that reducing enhanced benefits early did improve the rate at which jobless individuals returned to work slightly. However, analysts warn that any benefits would be minor and likely transitory, implying that the severe labor shortage that has stifled job growth will be tough to overcome. 

It has been discovered that unemployment fell somewhat quicker in states that had cut off federal assistance than in others from May to August.

However, the difference was bridged by concurrent employment growth in states that kept assistance in place. In that case, the gains came from individuals who were not in the labor force – people who were not working and were not actively searching for employment – rather than from the unemployed.

Teenagers, for example, have played an essential role in filling vacant jobs in these areas. This group obtained employment at almost double the rate of those in states that maintained their benefits in July.

One concern is that certain states may see a “congestion effect,” in which formerly jobless individuals occupy positions that might have been occupied by others joining the labor market. Although this might be good for one sector, it would be bad for another. 

However, one thing that is for sure is that now that the additional benefits have ceased, there will be an interesting – potentially very difficult – time ahead for the US job market and those searching for new employment. 

Photo by Tim Gouw from Pexels

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