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Study shines light on the effects of severed unemployment benefit programs

By September 1, 2021No Comments

The 20 states that reduced COVID-19-era supplemental unemployment benefits in June did not see a significant spike in overall hiring compared to states who kept the programs in place, according to a recent analysis by payroll processor Gusto. Workers 25 and older did return to work more quickly in states that severed benefits, but that growth was counterbalanced by the slowed hiring of teen workers, the study found.

For context: The Coronavirus Aid, Relief, and Economic Security (CARES) act of March 2020 extended unemployment benefits to individuals who were ordinarily ineligible for unemployment insurance and increased weekly benefit amounts by an extra $300 per week. In April 2021, the American Rescue Plan (ARPA) extended unemployment benefits until September 30, 2021.

Notably — the ARPA gave states the option to opt out of the supplemental unemployment programs before their September termination. And in June 2021, multiple states did just that, choosing to terminate some or all UI programs and suggesting that the $300 supplemental unemployment payments were stifling hiring efforts.

Gusto’s analysis set out to understand the role that these COVID-era UI provisions play in the labor market and more specifically — how they affect hiring rates. To do so, the survey compared the hiring trends of service-sector small businesses in states that ended benefits in June and July 2021 versus states that are continuing benefits until September 4.

The survey specifically examined the hiring trends of three groups of workers:

  • All workers
  • Adults age 25 or older
  • Teenagers between 15 and 19 years old — a cohort that serves as a natural “control” group due to the fact that they were likely not receiving UI benefits.

Gusto’s findings suggest that the act of ending unemployment benefits is not a “silver bullet” in speeding up hiring and promoting economic recovery. Instead, the report points to other factors — like health concerns and childcare needs – as realities that are preventing employees from returning to the workforce during the pandemic.

States that ended UI provisions early saw an increase in employment of adult workers

 States that ended ARPA unemployment programs did not see an overall increase in hiring following the announcement that benefits would be severed — despite that workers age 25 and older did return to work more swiftly. Notably, the spike in hiring seen in adult workers was counterbalanced by a drop in the hiring of teen and young adult workers.

From May 10 through May 17 — the week that many governors announced the end of supplemental unemployment insurance — hiring rates spiked for adults age 25 and older. But when benefits began to actually expire in mid-June, hiring patterns in these states plummeted back down, nearly matching the hiring rates in states that chose to keep UI provisions until September.

Relative to April 2021, cumulative employment among workers 25 or older was 5% higher in states that have not ended UI supplements early vs 7% higher in states that did end UI early.

According to the Bureau of Labor Statistics, the teen hiring rate is now at its lowest level since the 1950s.

While employment of older workers grew quickly in states that ended UI provisions, employment of teenagers grew more in states that chose to maintain supplemental UI programs. In states that did end UI benefits during the summer months, employment is 32% higher relative to April 2021, while employment of teens in states that will not end UI until September has grown 55%.

Employment growth in states that ended benefits early is not significantly different than states that kept them

Employment growth in the states that ended UI supplements in the summer is not noticeably different from states that are keeping them until September.

When examining the hiring rates of workers of all ages, employment in states that ended UI programs early has grown 11.6% since April, compared to 11.2% growth in states ending these programs in September.

Health concerns and child care demands may be preventing growth in states that ended UI benefits

Despite a growing collection of data, the impact that retiring UI benefits has on hiring rates is not entirely clear. On one hand, claims for unemployment benefits have fallen rapidly in the states that nixed supplemental programs — and yet, employers are still struggling to fill positions.

The authors suggest that the initial spike in hiring seen after the announcement was driven by employees who retained relationships with their original employers and were able to quickly return to their previous roles.

Health concerns among workers in service-sector jobs are also a barrier to reentry, the report suggests, noting that nearly all hiring growth in the weeks after the announcement was in states that had higher vaccination rates. Moreover, parents throughout the pandemic have had to leave the workforce due to ongoing child care demands. In a recent Gusto-NAWBO survey, 23% of business owners who are experiencing difficulty hiring attributed their trouble to difficulties finding child care among potential workers. As the Delta-variant continues to spread across the United States, it’s unclear when these concerns will lift.


ABOUT THE AUTHOR

Lia Tabackman is a freelance journalist, copywriter, and social media strategist based in Richmond, Virginia. Her writing has appeared in the Washington Post, CBS 6 News, the Los Angeles Times, and Arlington Magazine, among others. She writes weekly nonprofit-specific content for 501c.com.

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