Elimination of federal unemployment benefits spurred economic expansion

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The unemployment rate fell to 4.6% in October, reflecting the strong economic expansion that began in April 2020. This decline also reflects the anticipated end of federal unemployment compensation programs over the summer in 22 states. and in all remaining states in early September. In October, the unemployment rate had almost returned to the level natural rate of 4.5 percent, according to the Congressional Budget Office (CBO).

The evolution of the labor market for the unemployed confirms the view of an imminent return to high employment conditions, aided by the end of unemployment benefits linked to the pandemic. The first claims for unemployment compensation report for November 10 shows that the initial – unadjusted (NSA) – claims fell to 241,718 in the week ending October 30, below the 251,851 registered for the week ending March 14, 2020, just before the economy begins to reflect the effects of the pandemic, particularly on jobs. NSA data – the actual observed numbers for the economy – is used because the effects of the pandemic / recession on economic measures were unprecedented one-off events; appropriate seasonal adjustments are not possible. It was the second week in a row that continuing claims were lower than they were before the pandemic hit unemployment.

More importantly, the number of unemployed people receiving regular unemployment compensation from the state fell to 1.9 million on the NSA basis during the week ending October 30. This was less than the 2.07 million continuous requests. registered during the pre-pandemic week of March 14, 2020, for the third week in a row, and indicates that the effects of the pandemic / recession on unemployment have largely passed. The drop in pending claims reflects a sharp acceleration in the pace of return to work.

Last summer, there was little discussion about the link between cutting emergency federal unemployment benefits and accelerating employment gains. Isabel Soto from the American Action Forum valued that around 47,000 people would return to work because of the early termination of benefits, but the Secretary of Commerce Gina RaimondoGina RaimondoScott Says He Will Block Candidates Until Biden Officials Testify On Supply Chain Crisis Elimination Of Federal Unemployment Benefits Has Boosted Economic Expansion A Strategic Challenge For The United States : China and the Bahamas PLUS claims there would be no effect on employment. At the time, about half of the states had ended federal payments earlier, and many analysts suggested that this reduction would accelerate the decline in regular continuing benefit claims in those states. Federal officials said such measures did not accelerate the improvement in employment.

With the end of federal emergency programs, it’s even clearer that this has accelerated the decline in continued claims for regular benefits. Federal unemployment compensation programs paying $ 600 per week ended in late July and were replaced with payments of $ 300 through early September. As a result, the number of open claims fell from 15.9 million in the week ending July 25 to 12.3 million in the week ending September 12, an average decrease of 503,108 per week for seven weeks. When those funds ran out, no federal payments were made for 15 weeks. The number of continuing state unemployment claims fell another 7 million through the end of December, an average drop of another 468,654 per week.

In each case, a $ 300 weekly reduction in benefits reduced claimants by about half a million people per week, bringing the total reduction from late July to late December 2020 to 10.6 million – a reduction of 66. 3% of unemployment benefits. receive workers in five months. This is dramatic proof that benefit cuts reduce the number of job seekers.

When 22 states announced the early elimination of federal payments due in June and July, a large number of people again left open claims lists. From the week ending July 10 to the end of programs for the rest of the states on September 4, the state’s average weekly outflow of regular continuing claims was 118,337. Over the next eight weeks, through 30 October, when these states also ran out of federal benefits, the average weekly drop in continuing claims was 103,449. Compare these two periods with the pace of decline in the comparable 14 weeks before federal benefits were cut (early April to mid July): The average weekly drop was only 45,586 per week, less than half the rate observed after the pandemic. the related benefits have ended.

There are two central elements of confusion associated with the arguments that employment was not boosted when states cut federal benefits early. First, many people receiving federal benefits were employed while receiving those benefits. A report On the effect of ending federal benefits cited the hardship for a woman who had temporarily ended her efforts to start a motivational business and was working part-time for a county government. The second element of confusion was that most of the states that ended federal benefits early had largely achieved full employment requirements and did not see the need for additional incentives that were likely to be ineffective.

According to my calculations, the average unemployment rate in May in states that prematurely ended federal benefits, was only 4.45% – essentially the CBO’s estimate of the natural rate, so little further improvement could be expected. Nevertheless, in these states, the average unemployment rate fell to 4.23% in August. The other states, where benefits continued until early September, had an average unemployment rate of 5.83% in May 2021, well above the natural rate. These states benefited more from the end of unemployment benefits linked to the pandemic in early September. Their unemployment rates fell to an average of 5.50 in August, about 43% higher than in the first states in the same two months.

Some analysts might think that the slowdown in real GDP growth in the third quarter is attributable to slower job growth. Real GDP this quarter grew at a compound annual rate of 2%, up from 6.7% in the previous quarter. The decrease is largely due to a decreased productivity, falling to 4.8% in the business sector, compared with an expansion rate of 2.6% in the second quarter. Productivity had generally been exceptionally rapid during the economic recovery until the summer.

The decline in productivity in the third quarter was consistent with anecdotal information about supply chain bottlenecks and the lagged effects of the sharp increase in energy prices, as measured by the price index at the market. production for fuels and related products and electricity. The the price of energy has increased at an annual rate of 50.2 percent since the recession ended in the second quarter of last year.

John A. Tatom is a member of Institute for Applied Economics, Global Health and the Study of Business Enterprise at Johns Hopkins University.


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