Unemployment benefits cuts didn’t spark job growth, report says

States that prematurely ended enhanced unemployment benefits programs implemented during the pandemic did not see greater job growth compared to states that kept them.

A new report from the Federal Reserve Bank of San Francisco contradicted the theory that expanded benefits disincentivize people from returning to work, which many Republican state leaders argued when they cut the expanded benefits granted by the federal government.

“We find that the UI withdrawals had limited direct impacts on hiring rates, which suggests the enhanced UI benefits were not an important source of labor shortages in 2021,” the report states.

The benefits from the Coronavirus, Aid, Relief and Security Act officially ended in September 2021. But 26 states cut them early as the job market improved in the first half of 2021, with job openings reaching record levels. The act gave unemployed people an additional $600 weekly on top of benefits, which was later reduced to $300.

“Economists and policymakers typically weigh these positive aspects of UI benefits against their potentially adverse effects on job search: by easing the financial pressure to find work, generous benefits may overly delay people’s transitions to prior or new jobs,” the report states. 

But the authors stated, “There is little difference in the relative pattern of unemployment rates after the policy change in June.”

The report found that cuts were only associated with a small increase in hiring activity but no differences in measured employment.

This report seems to reaffirm an August 2021 study that found for every eight workers who lost benefits prematurely, just one found a job. To compensate, there was a dramatic reduction in spending, suggesting that people who lost benefits early found themselves facing financial hardships.