Opinion | What Happens When Jobless Benefits Shrink

Americans did not seem to stream back to work in July when federal unemployment benefits in some states became less generous. Studies found “at most a modest increase in employment in states that abandoned the programs,” Ben Casselman of The New York Times reported on Aug. 20.

As we head into Labor Day weekend and the Sept. 6 expiration of extra federal benefits in the states that have still been paying them, it’s worth taking a closer look at this puzzle. An Aug. 21 study by economists at Goldman Sachs sheds some light on what’s going on.

First, some background. The idea that generous benefits to the unemployed have kept people from taking jobs has been a Republican talking point for months, and it make some sense. It stands to reason that if you can earn more money on unemployment than you can from working — which has been the case for many people — you may choose to sit on the couch.

The Aug. 20 report from the Bureau of Labor Statistics on state and local employment in July seemed to undermine that narrative by showing that employment didn’t increase more in states that ended the extra federal benefits than in states that continued them. As my Opinion colleague Paul Krugman wrote, “if there was any effect, it wasn’t strong enough to cut through the statistical noise.”

That’s not the end of the story, though. The Goldman Sachs researchers took advantage of another data source from the B.L.S. that’s released a few weeks after the initial report: individual-level data from the monthly household survey that’s masked for confidentiality but that shows more precisely how people have responded to the changing incentives.

What Goldman found is that people who were out of a job but actively looking for work did take jobs at a faster clip in states where extra jobless benefits expired. That increase hadn’t been noticed in the aggregate data because it was small compared to the number of people who were not actively looking for work. That larger group of people, who are categorized by the government as out of the labor force, were not more likely to take jobs in July.

That actually makes sense. People who are in the labor force — in other words, those who say they are actively looking for work — are more likely to grab a job when the incentives change than are people who are out of the labor force but willing to take a job.

Joseph Briggs and Ronnie Walker, who wrote the study, drew four conclusions:

The expiration of benefits increased the probability that unemployed workers would find a job by 6 percentage points in July. That’s vs. an average job-finding probability of 27 percent across states that did and didn’t change the rules, so a substantial difference.

The effect was larger — 15 percentage points — for low-paid leisure and hospitality workers. That also makes sense; the generous benefits were a bigger deal for them.

The effect was “entirely driven” by workers who lost all extra federal benefits. The federal benefits include a $300-a-month payment on top of ordinary benefits, as well as an extension of the duration of benefits and expansion of eligibility to include gig workers. There was no change in job-finding probability for workers who lost only that extra $300a month.

The more time that passed after benefits expired, the bigger the effect. It was larger in states where benefits expired June 12 (21 percentage points) than in states where they expired June 26 (5 percentage points).

This chart shows what Goldman predicted on Aug. 21 on the basis of the July individual-level data. It was looking for employment to increase by 1.5 million from July through December vs. what would have happened if the extra unemployment benefits had not been allowed to expire.

Today, in a disappointing report, the B.L.S. said that employment grew by 235,000 in August, down sharply from a July increase of 1.05 million. The unemployment rate fell to 5.2 percent from 5.4 percent in July. The weak hiring seemed to reflect concerns of both employers and workers about the coronavirus’s Delta variant. Goldman’s estimate for August, at least, looks large in light of the new jobs report, but the Goldman economists aren’t going to revise their estimates formally until they get the individual-level data for August in a few weeks.

In an email to me today, Briggs wrote that the Covid hiring slowdown “likely masked any boost” from the expiration of unemployment insurance benefits. He added that “given the overlap between states that ended federal benefits early and states with deteriorating virus situations — may make it difficult to assess the effect of federal U.I. benefit expiration on employment in August.”

It’s worth noting that the Goldman economists don’t offer an opinion on whether the expiration of the enhanced jobless benefits is a good or bad thing. The benefit to the economy and employers of filling jobs has to be weighed against the harm to families that can’t get jobs, or are staying away from work because of fears of Covid, or whatever.

Different people will come to different conclusions about the trade-offs. Betsey Stevenson of the University of Michigan, who was a member of President Obama’s Council of Economic Advisers, told my Opinion colleague Ezra Klein on his podcast in June that if the change in unemployment insurance is having any effect, it’s small. “The thing is I actually am like, I don’t care,” she said. “I just, I don’t care. Because if it is discouraging people, they need it. And it’s not discouraging enough people for it to really matter.”

The Readers Write

As a patent attorney, I can tell you that the patent system in the U.S. today is actually a strong disincentive to innovate. Obtaining a patent is slow, expensive and subject to changing standards. Enforcing a patent costs many millions of dollars, takes, in some instances, a dozen or more years, and more often than not, ends in invalidation of the patent for reasons that are hyper-legalistic and also flatly unconstitutional as judges without a shred of technical knowledge vent their hostility toward subjects beyond their ken.

Lawrence A. Husick

Exton, Penn.

Quote of the Day

“What, then, is truth? A mobile army of metaphors, metonyms and anthropomorphisms — in short, a sum of human relations, which have been enhanced, transposed, and embellished poetically and rhetorically, and which after long use seem firm, canonical, and obligatory to a people: truths are illusions about which one has forgotten that this is what they are; metaphors which are worn out and without sensuous power; coins which have lost their pictures and now matter only as metal, no longer as coins.”

— Friedrich Nietzsche, “Truth and Lie in the Extra-moral Sense,” from “The Portable Nietzsche,” edited by Walter Kaufmann (1954).

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