There were record numbers of people on unemployment. And at the same time, employers struggled to find workers.
The solution was logical for 26 states – ax the extra $300 in weekly federal unemployment benefits and more people will return to work. Most of the 26 also cut the federal unemployment programs that offered extra weeks of pay after people exhausted their state benefits.
Job searches in those states increased after they announced they were canceling benefits. Jobs started filling faster in May and June, too, before the benefits were actually cut in late June and early July.
But then came a reversal.
In June, for every 100 jobs gained in states that cut the $300, the other states gained 75 jobs, per capita. But in July, for every 100 jobs gained in the $300-ending states, the others gained 116 jobs.
All states will be on the same level after Sept. 4, when the extra $300 goes away. Federal aid like the Pandemic Unemployment Assistance program also ends, unless states decide to use their stimulus money to keep the programs going (Michigan plans not to).
State leaders hope the end of the programs will push more people back into work. Economists aren’t banking on it.
What turned the tables?
In June, six of the eight fastest-rebounding states were those that canceled the $300 benefit. Canceling states had 0.55% more jobs than the month prior, while other states only jumped 0.41%. There was a similar trend in May.
Canceling states still had a good July – with jobs growing 0.58%. But the states that still had unemployment leapfrogged them, growing 0.67%.
Now, seven of the eight fastest-growing states were those that didn’t cancel the $300. And all eight were still offering PUA and other federal unemployment programs.
(Can’t see the June chart? Click here.)
(Can’t see the July chart? Click here.)
“This is kind of what we thought would happen – it really wasn’t going to make that much of a difference,” said Brad Hershbein, senior economist with the W.E. Upjohn Institute for Employment Research in Kalamazoo. “It wasn’t the UI checks that was really causing people (to stay jobless).”
One theory to the trend is, the threat of benefits ending has a larger impact than the actual ending date. That would explain why benefit-cutting states saw their biggest swings in June and July – and why the other states saw a jump in July as the Sept. 4 deadline loomed.
Most of the benefit-cutting states are southern, Republican states that were less likely to have COVID-19 restrictions. As a group, they’re at 97.2% of the jobs they had pre-pandemic, compared to 94.2% for the other states.
July’s surge for the benefit-keeping states could be partly because they had more room to “catch up,” Hershbein said. Southern states already reopened most of their leisure and hospitality businesses in the spring, but the return didn’t happen until later for others.
Will Michigan see a surge of job seekers?
Republicans and business owners are confident more people will seek work once their benefits lapse Sept. 4. Even Democratic Gov. Gretchen Whitmer isn’t interested in extending federal benefits.
But some experts say the extra unemployment has provided a much-needed boost to families and the economy.
“States that have better unemployment benefits have a faster recovery,” said Alexa Tapia, of the National Employment Law Project, about the Great Recession. “We’re also seeing that repeat now.”
A study done by economists at Harvard, Columbia and other top universities found that although slightly more people have gone back to work in benefit-axing states, a large percentage remain jobless. Of everybody tossed off benefits due to the policy change, only 13% had a job by the first week of August, the study found.
That’s why NELP is pushing states to keep the money flowing. Tapia described the early conclusion of the unemployment benefits in some states as “cruel.”
“We know that as this crisis is still going, this is still a vital lifeline for many folks and families,” Tapia said.
There are many other factors at play for why someone may choose not to work, Hershbein said. He doesn’t believe we’ll see a flood of job applications Sept. 5.
“It’s probably going to be a nothingburger,” Hershbein said. “I don’t think you’re going to see a huge change.”
What does that mean for Michigan this fall?
If Michigan follows the pattern from the Columbia and Harvard study, about 50,000 will return to work in September and October out of the 400,000 people who will lose benefits.
But other factors will have a bigger impact on jobs, Hershbein said – namely, the coronavirus. It’s likely not a coincidence that growth plateaued in southern states in July, right when the Delta variant started to hit, he said.
“The virus is still the biggest thing (impacting jobs),” Hershbein said.
Schools will also play a major role. If schools allow masks to be optional while COVID-19 invades further, it could stagnate the economy.
“If you were planning on your kid going back to school and they have to quarantine everybody because there’s an outbreak and you can’t work as much because someone needs to watch the kids and you weren’t planning on that, that could be a big damper on continued (job) expansion,” Hershbein said.
A new problem on the horizon will be a potential decrease in demand, with the federal unemployment money gone.
Michigan handed $343 million in federal money to claimants every week, using June data from Michigan and the Bureau of Labor Statistics.
That adds up to nearly $6 billion not floating around in Michigan’s economy for the balance of 2021.
States that cut unemployment saw a $2 billion reduction in consumer spending from June to the first week of August, the study from the university economists found.
“Ask any economist, they will tell you the surest way to pump money into the economy is to get it directly to people who are going to spend it,” Hershbein said.
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