Unemployment Cutoffs Mainly Made Workers Poorer, Research Suggests

Jobless workers in states that cut federal benefits early had much less money but were only slightly likelier to have found jobs.

Republican governors canceled federal unemployment benefits earlier this summer to prod the unemployed into taking jobs, but new research suggests most people who lost benefits remained unemployed.

In the Republican-led states that ended federal benefits in June, only one out of every eight workers found a job by early August, according to an academic analysis of thousands of workers’ incomes.

On average, workers in cutoff states lost $278 per week in benefits and gained just $14 in earnings ― meaning they collectively recovered only about 5% of their lost income. They spent $145 less per week.

Twenty-six states canceled the federal benefits this summer ahead of their expiration date in early September. The federal government has been providing an extra $300 per week plus benefits for gig workers and people who’ve been unemployed too long to be covered by regular state benefits. Some workers lost the $300 but could continue receiving state benefits; many saw their incomes go to zero.

Shannon Meyer of Louisburg, Missouri, went from receiving $363 per week in federal long-term benefits until the state withdrew from all federal programs in June.

“I was getting $363 a week and I could buy things,” Meyer said. “Now I can’t buy anything.”

Meyer, 57, worked as a home health aide until the pandemic. Now she babysits for her daughter and is wary of getting a new job because it could be risky for her health.

“I can’t really make myself get a job around here with all the maskless people and the delta variant exploding,” she said.

Some Missouri employers have continued to complain they can’t find workers.

The cutoffs did not entirely fail to produce the intended outcome, since the research suggests that workers in states that cut benefits were slightly likelier to take jobs. Nearly 25% of workers receiving benefits in April subsequently received paychecks, compared to 21.5% in states that kept benefits, according to the study.

The governors who cut benefits early did so only to benefit employers that have struggled to hire as the economy recovers from the coronavirus pandemic. The theory was that poorer workers would be more likely to take jobs without demanding higher pay, and the collateral damage to workers’ financial well-being was not part of the equation.

But the researchers estimate that the missing unemployment compensation could have resulted in something like $2 billion less consumer spending, meaning the states that cut benefits may have harmed their own economies.

“It generated a small increase in job finding and earnings went up a bit, but it’s a lot smaller than the drop in benefits,” said Kyle Coombs, a fifth-year Ph.D. candidate at Columbia University who is one of the paper’s co-authors.

Coombs and his co-authors — economists at Columbia University, Harvard University, the University of Massachusetts Amherst and the University of Toronto — examined anonymized data from Earnin, a payday lending app that gives users advances on their paychecks in exchange for “tips.” The researchers looked at data for 18,000 users.

The Biden administration this week suggested that states concerned about their workers could use pandemic relief funds to replace the benefits with new income support programs after the benefits expire on Sept. 6.

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