$300 unemployment boost has ‘small’ effect on job finding: Fed study

The additional $300 in emergency unemployment benefits likely only has a small effect on recipients’ decisions to take jobs, according to a new working paper from the Federal Reserve Bank of San Francisco. 

The study undercuts GOP arguments that the boosted benefits are responsible for slowing the labor market recovery and contribute significantly to a labor shortage.

Nicolas Petrosky-Nadeau and Robert G. Valletta, the study’s authors, wrote that their estimates “suggests few would turn down an offer to return to work at the previous wage.”

The model in the paper posits that the decision of whether to take a new job depends on several factors, including the availability of jobs, how long the job is expected to last and the runway for unemployment benefits.

By that thinking, a worker with a high school education making $800 a week before the pandemic would not have been deterred from taking a job, even if additional unemployment benefits were 25 percent higher than the wages.

By comparing different rates of unemployment compensation, which vary widely from state to state, to changes in the labor market in the early part of the pandemic, when workers were receiving an additional $600 in weekly benefits, the study was able to estimate how big of an effect the benefits had on jobs.

“From the perspective of the first week of June 2020, with 8 weeks of supplementary UI payment remaining and as states were moving to re-open their economies, only workers in the lowest paid occupation (food services, with typical earnings of $460 per week) would be about indifferent between accepting an offer and remaining unemployed,” the authors found. 

“The value of a job, especially in a depressed labor market, significantly outweighs the value of the temporary additional UI income.” 

The $600 benefit, they said, had “moderate disincentive effects” on job finding.

But the $300 benefit currently on offer, which is set to expire in early September, has only “small effects” based on that framework.

The data suggested that if seven of every 28 unemployed people received a job offer, just one of them would turn it down because they were receiving an extra $300 a week.

The paper comes as nearly two dozen GOP-led states have moved to cut off additional federal unemployment benefits, arguing that they were holding back the recovery.

April’s disappointing jobs report, which only saw 266,000 new jobs created relative to the million economists expected, spurred a round of finger-pointing as to what was holding back the recovery. 

Businesses, particularly in the food and leisure industries, have widely reported difficulties finding workers to fill positions. 

Democrats argue that lack of access to child care amid the ongoing pandemic is more responsible. As of March, fewer than two-thirds of children had access to regular, in-person school.

Pulling back benefits at a time when 16 million people are still on the unemployment rolls, Democrats argue, will simply create more hardship for the country’s poorest rather than spur a quicker economic turnaround.