26 states ended federal unemployment benefits early. Data suggests it’s not getting people back to work

About half of U.S. states withdrew federal funds for the unemployed months early to encourage out-of-work residents to find a job. But mounting evidence shows that policy gambit hasn’t yet paid off.

Twenty-six states announced their intent to end federal pandemic-era benefits starting in May. They officially pulled out in waves over June and July.

UKG, a payroll and time-management firm, found that shifts among hourly workers in those states grew at about half the rate as states that continued the benefit — the opposite trend of what one might expect.

Specifically, in states that ended benefits, shifts grew 2.2% from May through July; they grew 4.1% in the others that kept federal aid intact, according to UKG’s analysis.

“Unemployment benefits were not the thing holding people back from going to work,” according to Dave Gilbertson, a vice president at UKG. “There are other elements out there, particularly in their personal lives, making it really difficult to go back to work.”

It doesn’t appear differences in state economies or labor markets influenced the dichotomy, since both groups were growing at similar rates earlier this year, Gilbertson said.

Similarly, employment fell 0.9% in states that ended federal benefits between mid-June and mid-July, but rose 2.3% in states that kept them, according to data published this week by Homebase, another payroll and time-management firm.

The analysis examined percent change in number of employees working relative to April 2021.

The UKG and Homebase figures are early indicators. It will likely take another month or two of job and other labor-market data before economists can make a more thorough assessment of how effective the state policies were, they say.

“It’s an early view, there’s no question,” Gilbertson said. “It takes a while for folks to be able to rearrange their personal lives to start a new job.

“But I feel it’s a pretty strong directional indicator.”

The high-frequency data aligns with other recent analyses.

Economists at Indeed, using proprietary job-search data, and Arindrajit Dube, an economics professor at the University of Massachusetts Amherst, who studied recent survey data published by the U.S. Census Bureau, also didn’t find evidence that state policies pushed people back to work.

“[Data] suggest there’s no clear evidence that [unemployment] programs going away early led to a significant increase in employment growth or job finding,” according to Nick Bunker, the economic research director for North America at the Indeed Hiring Lab.

The federal programs in question were created by the CARES Act in March 2020, as millions of people turned to the unemployment system amid mass layoffs.

They raised the amount of weekly benefits (currently by $300 a week) and offered aid to workers who don’t typically qualify, like the long-term unemployed and gig workers, the self-employed, part-timers and freelancers.

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Talk of labor shortages — and the role of expanded benefits in them — began in earnest following the April jobs report. The U.S. economy added 269,000 new jobs that month, about a fourth of what economists predicted.

Montana was the first of the 26 states to announce its withdrawal. The American Rescue Plan offers the federal assistance until Sept. 6.

In place of expanded benefits, Montana Gov. Greg Gianforte offered residents a onetime return-to-work bonus. A handful of other states also offered such bonuses.

“The vast expansion of federal unemployment benefits is now doing more harm than good,” Gianforte said May 4. “We need to incentivize Montanans to reenter the workforce.”

U.S. job growth has ramped up since May, to 850,000 in June. The Bureau of Labor Statistics is issuing its July report Friday; economists expect it to show 845,000 new jobs.

Some economists argue pandemic-related factors, not jobless benefits, are the primary reasons workers may not be returning to the workforce as quickly as anticipated.

For example, parents may still not have adequate childcare; those who can’t work from home may still be cautious for health reasons; workers may have relocated away from jobs, or changed industries, during the pandemic; and baby boomers may have retired early and don’t plan to return.

The delta variant threatens to further complicate the recovery. Many of the states that withdrew federal support also have lower rates of Covid vaccination, Bunker said.

“Especially now with the delta variant, it could be pushing the labor markets back in those states,” he said.

Nationally, fewer unemployed people flagged the pandemic as a reason for not searching urgently for work in July relative to June, according to an Indeed survey published Wednesday.

Jobless respondents ranked unemployment payments last among factors keeping them from searching for work urgently. They ranked behind financial cushion, have an employed spouse, household care responsibilities and Covid fears.

With the $300 supplement, almost half of jobless workers (48%) make as much or more money on unemployment benefits than their lost paychecks, according to a recent paper published by the JPMorgan Chase & Co. Institute.

Those extra funds had a small impact on job-finding but didn’t significantly hold back the job market through mid-May, according to economists Fiona Greig, Daniel Sullivan, Peter Ganong, Pascal Noel and Joseph Vavra, who authored the analysis.