Early Data Shows Jobless Claims Drop After Benefits Cut

Continuing unemployment claims dropped more in states that stopped participating in federal emergency pandemic unemployment programs than in states that didn’t, according to early data examined by the St. Louis Federal Reserve.

Starting with the week ended May 15—seen as the midpoint of when states began to announce their intention to end emergency benefits—and continuing through June 26, the study showed continuing jobless claims dropped 12% in states intending to halt emergency benefits, compared with a 7% decline in states that had no plans to terminate the benefits. The chart below shows claims dropping roughly in tandem (about 10%) from the beginning of April through mid-May, before states began announcing plans to drop extended benefits, and then diverging sharply after the announcements began rolling in. 

When the pandemic hit, the government closed most businesses and ordered people to try to stay home to slow the spread of COVID-19. More than 52 million jobless claims were filed between March 15 and August 15, 2020, and the federal government beefed up jobless benefits. It allowed people like gig workers who normally don’t qualify to claim them, added money to the weekly benefits, and extended the extra benefits to Sept. 6.

But with the economy quickly reopening amid vaccine rollouts and businesses facing a labor shortage, some said the enhanced benefits made it harder for companies to fill jobs, and many states began ending the enhancements early to encourage people to return to work. More than 1.8 million people have turned down work during the pandemic because of generous unemployment benefits, according to a Morning Consult poll released Wednesday.

St. Louis Fed economist Bill Dupor, who conducted the unemployment claims study, said one reason the “halting states” saw a larger decline in claims is that people may be dropping out of unemployment programs due to the less-generous benefits. They “might in turn be taking jobs and thus boosting employment levels in their respective states,” he said. “Time will tell whether this difference persists, as new weekly data arrive and additional states implement plans to cease providing emergency benefits.”

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