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The Results of the Labor-Market Experiment Are In


The Results of the Labor-Market Experiment Are In

--- Quote ---In mid-May, the United States embarked on a labor-market experiment. The results are in: cutting unemployment insurance (UI) benefits led to job gains.

During the Covid-19 pandemic, the federal government had provided enhanced UI benefits, initially set at an extra $600 per week on top of the regular state benefits. The top-up was later pared back to $300 per week, and scheduled to run through September. In addition to the top-ups, the federal government extended the duration of unemployment benefits and expanded benefit eligibility to workers not previously covered under the state UI systems. While these enhanced benefits may have made some sense during the lockdowns in the pandemic’s initial phase in the spring of 2020, by early 2021 most states had experienced strong economic rebounds and businesses were looking to hire.

Many critics (including me) had noted from the outset of the program that the federal benefit enhancements meant that many workers would earn more while unemployed than they did while working, providing a strong disincentive to find a job. However, the unprecedented economic upheaval and volatility during the pandemic made it hard to isolate the role of unemployment benefits from other factors. Indeed, early economic studies failed to identify an effect on employment of the enhanced benefits through the summer of 2020.

But data released in early May proved decisive. On May 7, the April employment report was released, showing job growth far below expectations. On May 10, news broke that March job openings had risen to a record level. The simultaneous signs of strong labor demand by businesses but slowing employment confirmed anecdotal reports of difficulty in hiring and pointed toward labor-supply difficulties. Within days, several states announced that they would be ending participation in the federal unemployment-benefit programs. Eventually, the list of states ending benefits would grow to 26.
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Well, duh!


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