Did state cuts to unemployment pay get people back to work in June?

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The US added 850,000 jobs in June, most since the summer of 2020 – which some might ask if recent government cuts in unemployment benefits are getting people back to work.

The short answer: According to labor economists, it’s too early to say.

However, the evidence available suggests that the benefit cuts are unlikely to have played a major role, they said. Covid-related factors, such as looser restrictions on businesses, likely drove most of employment growth over the past month, economists said.

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“The data … don’t suggest it [unemployment insurance] is an important factor right now, “says Nick Bunker, economist at Indeed.” There is no smoking weapon.

Twenty-five states have withdrawn from federal unemployment programs in the past few weeks, months ahead of their official Labor Day closing.

These pandemic-era programs included an additional $ 300 per week in addition to typical benefits, as well as assistance for the self-employed and gig workers, as well as the long-term unemployed.

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According to an estimate by the University of Chicago economist Peter Ganong, about 4 out of 10 unemployed people would receive more benefits than a paycheck if you factor in $ 300 a week.

The governors, all Republicans of the states in question, said federal aid was keeping people at home instead of looking for work.

Too early

However, according to economists, it is too early to judge whether their policies drove workers to take jobs in June.

For one, there is a timing problem. The June employment report released on Friday would not reflect actual financial loss of benefits – just workers’ fear of losing aid.

The Bureau of Labor Statistics, which publishes the job report, based its analysis on employer data as of June 12. The first tranche of the states – Alaska, Iowa, Mississippi, and Missouri – stopped paying federal benefits on the same day.

In other words, none of the 850,000 people who got jobs in June had any financial impact from benefit cuts.

Expectation

The expectation of loss of benefits is unlikely to have caused a job rush, economists said. The first state to announce its intention to end federal benefits (Montana) did so on May 4.

“In general, the anticipatory effects are quite small,” says Daniel Zhao, chief economist at Glassdoor, a job and recruiting website.

“It requires people to pay close attention to government policy announcements and base their job search and financial decisions on them,” Zhao added. “The fact is, people don’t watch the press releases from their state labor departments closely.”

Additionally, given the current high demand for their workforce in industries such as leisure and hospitality, low-wage workers – who get the greatest relative financial benefit from an additional $ 300 per week – are unlikely to be motivated by anticipatory anxiety, Susan Houseman said , Research Director at the WE Upjohn Institute for Employment Research.

You should be able to find a job relatively easily, she said.

“I’m not saying there is no anticipatory effect at all,” said Houseman. “But the most [people who are] Staying out on the $ 300 a week won’t come back in until that is cut off. “

Other evidence

The US employment report is published once a month, which makes it difficult to draw any conclusions from the available data about the impact of benefit cuts on job search.

Other more frequently updated records suggest the cuts aren’t having a big impact on job searches, economists said.

For example, Aaron Sojourner, associate professor at the University of Minnesota, examined weekly data on claims for unemployment benefits. He found no differences in benefit entitlements between states that announced or implemented benefit cuts and those that did not.

However, it is still too early for final judgments, said Sojourner.

Indeed, data from Indeed did not indicate a large or sustained surge in job searches, according to Bunker.

Instead, the number of jobs in June, which surpassed economists’ estimate of 706,000, was likely most driven by pandemic-related factors.

On the one hand, falling Covid infection numbers and rising vaccination rates have caused many states to further relax restrictions such as capacity limits for companies and to increase the demand for workers, according to economists.

“In some ways, it’s no surprise that the recovery is accelerating as the public health situation continues to improve,” said Zhao. “The pandemic is what has slowed the economy so far.”

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