Biden gambled that cutting off federal jobless aid would drive people back to work. The September jobs report blew a hole through that idea.

Biden delivers remarks about the need for Congress to raise the debt limit in the State Dining Room at the White House on October 04, 2021 in Washington, DC. Biden was critical of Senate Republicans and their leader Sen. Mitch McConnell (R-KY) after they blocked efforts by Democrats to raise the borrowing limit, potentially destabilizing markets and threatening to default the federal government.
  • The number of jobs added in September came in at a paltry 194,000, far below economists’ expectations.
  • It was the first report to capture the widespread impact of federal unemployment ending early.
  • The White House allowed federal jobless aid to end last month. Its gambit to get people back to work blew up in its face.

September showed conclusively that federal unemployment benefits weren’t solely to blame for people staying home.

Over the summer, 26 states ended their participation in federal unemployment benefits earlier than planned, cutting off an additional $US300 ($AU410) a week in an effort to get people back to work. The Biden administration chose not to step in and pay out benefits through the Department of Labor – even though several federal judges reinstated the benefits throughout July and August – and millions of Americans lost benefits.

Then, the White House agreed with business groups and Republican demands to allow the federal unemployment programs to end last month. In July, Biden said it “makes sense” for emergency federal aid to end for jobless Americans.

Now we know that unemployment benefits ending didn’t have a strong link to job gains. The US added just 194,000 jobs in September, in the first jobs report to show the widespread impact on the labor market of ending enhanced unemployment It captures the sentiment of workers around the country who were cut off, not just in those 26 mostly Republican-governed states.

The September payrolls were a huge miss from the 500,000 job gains that economists surveyed by Bloomberg expected. The hiring week that the Bureau of Labor Statistics tracks ended on September 18, when the Delta variant was just starting to ease from its peak.

In September, labor force participation ticked down – the opposite of what you’d expect to see from unemployment ending pushing people back to work. The measure shows the people who are either actively seeking work or are unemployed.

“I think it is going to be disappointing for employers who were hoping that the expiration of benefits would push many workers back into the labor force,” Daniel Zhao, a senior economist at Glassdoor, told Insider. “The evidence so far during the recovery has not suggested that there would be a flood of workers back into the labor force, and I think this September report just compounds that evidence.”

To be sure, the unemployment rate in September did tick down to 4.8%. That's a promising sign, although labor force participation falling can also bring down the unemployment rate, since fewer people say they're actively searching for jobs. The survey week only captures the first week without benefits in the remaining 24 states. That means it's still early, but the Delta wave is a much bigger deterrent to work than stingy unemployment benefits. The pandemic relief program ended but the pandemic didn't.

"Also, all that talk of end UI being a big driver. It's a nothingburger," University of Michigan economics professor Justin Wolfers wrote on Twitter. "The real issue is - and remains - the virus."

Ending benefits cost reliable income for millions of people

Many of the 26 early opt-out states also ended pandemic-era programs that expanded both who was eligible for unemployment and how long people could receive it. For the first time, gig workers and freelancers were able to collect benefits. That meant that millions of unemployed workers lost their benefits completely when states pulled out of federal programs.

Research showed again and again that ending benefits early had little to no impact on actual employment, and states that opted out saw a $US2 ($AU3) billion drop in spending. Experts warned it was too early. Unemployed people told Insider they were still job-hunting while being scared to work at some of the in-person jobs that were actively hiring.

One Pennsylvania mom told Insider that she couldn't return to work because her son was high risk for Covid and not eligible for a vaccine yet; she had to leave a longtime job that she loved to stay with him through virtual schooling.

The Biden administration and Congress didn't step in to extend benefits, although Treasury Secretary Janet Yellen and Labor Secretary Marty Walsh told states they could continue benefits on their own. None did. And so 8.5 million people lost their unemployment benefits.

The White House did not respond to Insider's request for comment.