According to a recent study, states that exited federal unemployment programs early pushed few individuals in the back-to-work program and fueled a nearly $2 billion decrease in household spending, potentially harming their local economies. 

Except for one, twenty-six state governors opted out of the pandemic-era programs several weeks before they were set to expire on Labor Day. They stated that increased benefits discouraged unemployed people from looking for work, contributing to a labor shortage. 

According to a paper co-authored by economists and researchers jobs in Columbia University, Harvard University, the University of Massachusetts Amherst, and the University of Toronto, that bet appears to have paid off just partially thus far. The study was released on Friday. 

The data suggests that unemployment benefits aren’t a major factor in hiring difficulties and that other factors are more important – a finding aligns with other recent research on policy decisions. 

The new study tracks 18,648 people receiving unemployment benefits in late April using anonymized bank account data from financial services provider Earnin. According to researchers, individuals in 19 states that removed federal jobs assistance in June were compared to those in 23 states that kept them intact. 

States that terminated federal assistance early experienced a greater increase in job creation among the unemployed: According to the report, which examines data through the first week of August, their employment increased by 4.4 percentage points compared to jobless people in states that kept benefits flowing. 

However, that translates to just 1 in 8 unemployed individuals in the “cutoff states” who found a job in that time period. The majority, 7 out of 8, didn’t find a new job. 

 “Yes, there was an uptick in employment,” University of Massachusetts Amherst economics professor Arindrajit Dube said. “Most people lost benefits and weren’t able to find jobs.” 

According to the report, the employment dynamic — a loss of benefits without corresponding job income for most individuals — caused households to slash their weekly expenditure by 20%. As a result, consumer spending in the cutoff states decreased by approximately $2 billion between June and the first week of August. 

 “They turned down federal transfers, and that money didn’t come back into the state from new job income,” University of Toronto assistant professor Michael Stepner said. He also co-authored the paper. 

We have announced the end date of our state of emergency, there are no industry shutdowns, and daycares are operating with no restrictions,” Alabama Gov. Kay Ivey said in May when announcing the withdrawal. “Vaccinations are available for all adults. Alabama is giving the federal government our 30-day notice that it’s time to get back to work.” 

The study’s findings came as job opportunities in the United States hit a new high in June, despite the economy still being roughly 6 million jobs short of its pre-pandemic level. Last month, retail sales in the United States fell more than predicted, owing to renewed concerns about Covid-19. 

The Biden administration is encouraging states with high unemployment rates to use federal funds provided by the American Rescue Plan to keep benefits flowing past Sept. 6. 

Dube said that most job growth in the withdrawing states wasn’t due to the loss of a $300 weekly supplement, as may have been expected. Instead, it was largely due to the self-employed and long-term unemployed workers who lost their aid entirely since they’re ineligible for traditional state benefits. 

Relative differences in the states’ economies also don’t seem to account for the research results, Dube and Stepner said. And a spike in job growth is unlikely in coming weeks since the pace of hiring in the cutoff states had plateaued by mid-July, they said. 

Source: CNBC