We compare how employment has changed in states that cut off benefits, and in those that have not
One possibility is that the cliff-edge will bring people back to work. Although employment remains about 5.7m below its level in February 2020, firms are struggling to fill vacancies. In July wages in leisure and hospitality jobs were nearly 10% above pre-pandemic levels. Economic theory says thatdeters jobseeking—a prediction supported, at least to some degree, by most studies of its effects before 2020.
Yet this relationship has not been apparent during the pandemic. Congress allowed states to opt out of the prolonged benefits this year. Over the summer 26 of them—mostly those with Republican governors—ended at least some benefits early. Their economies do not seem to have benefited much. Between June and July the share of working-age people who were employed rose by 3.5 percentage points in states that kept the benefits, exceeding the 2.7-percentage-point increase in states that cut them off.
Several groups of researchers have struggled to unearth the expected correlation using more sophisticated methods. The latest attempt is by Kyle Coombs of Columbia University and co-authors, who studied the bank records of 18,000 low-income workers. They found that, in the states that ended benefits, 26% of workers who had previously received them were employed in August, compared with 22% in other states—a difference that, as a share of the entire labour force, is modest.
One consequence of withdrawing benefits might not come as a surprise. It has left the jobless with less money in their pockets. Mr Coombs and his colleagues found that in cut-off states affected workers reduced their weekly outlays by $278. Our analysis of theshows that the share of adults saying it was “somewhat” or “very” difficult to pay for typical household expenses began rising in cut-off states shortly before the expiry. Elsewhere, there was no change .
That raises the possibility that cutting off benefits could harm overall consumer spending. But the numbers involved are puny: a $2bn fall between June and early August, compared with monthly aggregate consumer spending of over $1.3trn. The labour-supply effect should be more significant—if it shows up.
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