- States ending extra unemployment benefits early are seeing a plunge in claims, Insider calculates.
- The trend suggests GOP governors’ plans to push more people into the workforce are working – but a rise in employment hasn’t followed.
- Some economists say virus fears and school closures also play a major role in slow hiring.
- See more stories on Insider’s business page.
Republican governors began cutting federal unemployment benefits in June. Some argued the move would push jobless Americans back into the workforce, while others more bluntly criticized the federal enhancement for disincentivizing work.
Early signs suggest they’re getting exactly what they wanted: A big cut to the social safety net. They’re not getting a jobs boom, though.
By the end of July, 26 states will have prematurely ended the federal government’s $US300 ($AU409)-per-week expansion to unemployment insurance. All but one are led by Republican governors, and the other is a Democrat governing the deep-red state of Louisiana. The first rollbacks started in mid-June. In total, about 4 million Americans will see some or all of their benefits cut off ahead of the planned September deadline.
The boost to UI payments had come under intense scrutiny in May after a dismal jobs report appeared to validate anecdotal accounts of a “labor shortage.” Economists have blamed reluctance to work on a handful of factors, ranging from school closures to virus fears. Yet enhanced UI caught the most flak from conservatives who have long critiqued the relief program, if not the very concept of a stronger safety net.
Continuing claims data published in recent weeks reveal a considerable gap in UI use between states ending the supplement early and those not. Continuing claims, which track Americans receiving benefits, took on more relevance as states began to cancel the UI expansion. In early August, that number hit a pandemic-era low.
Separating the two groups of states shows continuing claims down roughly 14% from early June to mid-July. By comparison, continuing claims are up about 5.5% in states set to let the UI boost run until its September expiration.
To be sure, a large share of the decline on the week ended July 3 came from Florida, which canceled the federal boost on June 26. Weekly claims data are also fairly volatile.
The employment situation isn’t terrible in Republican-governed states. Of the 15 states to recover the most of their lost payrolls, 13 prematurely ended the federal UI enhancement. The only two states to boast employment above pre-pandemic levels – Idaho and Utah – cut the boost in June. Meanwhile, the five states furthest behind in their labor-market recoveries are all letting the enhancement run through September.
Of course, it’s worth noting that those states were seeing more job recovery well before announcing cuts to unemployment benefits, suggesting that there may be other factors at work.
Some economists have warned against tying hiring to cutting UI payments, however. There’s “little sign” that ending the boost drives jobless Americans back to the workforce, JPMorgan economists said in a July note. A previous note from the bank said ending the benefit early was “tied to politics, not economics,” Insider’s Juliana Kaplan and Joseph Zeballos-Roig reported.
And an analysis by University of Massachusetts economist Arindrajit Dube using frequently updated data from the Census Bureau found that states which cut benefits didn’t see big increases in employment in the following weeks, casting doubt on the idea that those cuts would immediately push people back into work.
The coming weeks will shed more light on whether the GOP governors’ plans are truly working as intended. So far, the gap suggests they have reason to celebrate.
[Editor’s note: A previous version of this article said in its headline that it appeared GOP governors were successful in forcing people back to work. That has been revised to state they are successful in kicking people off unemployment, as subsequent data shows little to no increase in hiring.]