Workers at the Los Angeles County Regional Food Bank help distribute food in Willowbrook, California, on April 29, 2021.
Frederic J. Brown | AFP | Getty Images
States that soon withdrew from federal unemployment programs pushed few people into work and fueled a nearly $ 2 billion reduction in household spending, which could hurt their local economies, according to a new research.
Twenty-six state governors, all but one Republican, opted for pandemic-era programs several weeks before their official Labor Day expiration. According to them, the improved benefits prevented the unemployed from looking for jobs and feeding the shortage of labor.
This bet appears to have had limited benefit so far, according to a paper written by economists and researchers at Columbia University, Harvard University, the University of Massachusetts Amherst and the University of Toronto. The investigation was published Friday.
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The data suggest that unemployment benefits do not play a major role in recruitment challenges and that other factors have a greater impact, a similar impetus to other recent research analyzing policy decisions.
The new document uses anonymized bank account data from financial services company Earnin to track 18,648 people receiving unemployment benefits at the end of April. The researchers compared individuals from 19 states that withdrew federal benefits in June with those from 23 states that kept them intact.
According to the newspaper, which analyzes data during the first week of August, states that ended federal benefits experienced higher labor gains among the unemployed: their employment rose 4.4 percentage points relative to the unemployed in the United States. states that maintained the flow of benefits.
However, this translates into only 1 in eight unemployed people from the “cutting states” finding work in that time period. Most, 7 out of 8, did not find a new job.
“Yes, there was an increase [in employment]”Arindrajit Dube, a professor of economics at the University of Massachusetts Amherst, said,” Most people lost their jobs and couldn’t find work. “
Dube was co-author of the research paper.
The dynamics of employment – a loss of profits without income for most people – led households to reduce weekly spending by 20%, according to the newspaper. As a result, the economies of the cutting states experienced a reduction of nearly $ 2 billion in consumer spending from June to the first week of August.
“They rejected federal transfers and that money didn’t go back to the state [from new job income]”, Said University of Toronto Assistant Professor Michael Stepner. He also co-authored the paper.
A 20% reduction in spending means a big reduction in the quality of life for these households, which are largely lower-income, Stepner said.
The governor’s offices in Alabama, Nebraska, New Hampshire and Utah – a subset of the states – did not return CNBC’s request for comment on the policies.
“We have announced the end date of our state of emergency, there are no industry shutdowns and daycares operate without restrictions,” Alabama Gov. Kay Ivey said in May when he announced the withdrawal. “Vaccines are available for all adults. Alabama notifies the federal government 30 days in advance that it’s time to get back to work.”
The research results come as U.S. job offers broke a record in June, while the economy keeps nearly 6 million jobs below its pre-pandemic level. Nationwide retail sales fell more than expected last month amid renewed fears of Covid-19.
The Biden administration encourages states with high unemployment rates to use federal funds provided by the American Rescue Plan to keep benefits flowing on Sept. 6.
Most of the employment growth in the states that withdrew was not due to the loss of a $ 300 weekly supplement, as might be expected, Dube said. Instead, it was largely due to workers such as the self-employed and the long-term unemployed who completely lost their aid as they are not eligible for traditional state benefits.
Dube and Stepner said the relative differences in the economies of the states also do not explain the results of the research. And employment growth is unlikely to increase in the coming weeks, as the pace of hiring in the cutting states had stabilized by mid-July, they said.
The results of the research suggest that increased unemployment benefits are a small but incomplete explanation of hiring challenges, they said.
“There’s a gap in the job market,” Stepner said. “There are a lot of open jobs, below average job participation, and yet those open jobs are not being filled.
“I think it ‘s an open question [as to why]”, Added.” I don’t think any labor economist has a clear explanation. “
Economists point to Covid’s health problems and the continuing challenges posed by healthcare responsibilities as possible factors.
Workers can also expect more pay, benefits and flexibility from a future employer. Stimulus controls and other pandemic aid may have provided a financial cushion for workers to be more selective in their search for a new job.