MNI INTERVIEW: Enhanced UI End Not US Jobs Gain Driver: SF Fed

Employment gains in states planning to cut enhanced unemployment insurance benefits are unlikely to be tied to those programs' premature end, labor economists at the San Francisco Fed told MNI, although a small number of workers on the margins could be affected.

It's unlikely that cutting federal pandemic-related unemployment benefits will trigger a "rush" of workers to the labor market, as some state policymakers have suggested, said Robert Valletta, senior vice president and associate director of research at the Fed bank, and other concurrent factors, like declining Covid-19 case counts, widespread vaccine availability, and state reopenings will have a more significant impact on hiring.

"For all of those reasons, we might see a rapid opening up of activity and lots of hiring going on over the next few months," he said. "But our research suggests that whatever pickup in activity occurs, it's not because of the elimination of the enhanced UI benefits, but because of these other factors."

Still, some UI claimants, particularly those at the lowest end of the wage distribution, are "at the margin" between accepting or rejecting a new job offer and could be sitting out until their benefits run out, he said.

LIMITED IMPACT

Unlike an added USD600 per week offered to UI recipients under the CARES Act, which was authorized for just four months, the extra USD300 authorized by the most recent Covid relief package lasts through much of this year. That appears to have had a "small effect" on some individuals' decision to return to work, Valletta said.

"If people are expecting it to last, that's a meaningful difference in their weekly and monthly income," he said.

That said, earlier research from the San Francisco Fed suggests that the USD600 top off had little-to-no impact on workers' willingness to return to work, so "it's not likely that, for the vast majority of people, this [USD300] would be a disincentive to turn down a job offer," Nicolas Petrosky-Nadeau, vice president of macroeconomic research at the SF Fed, told MNI.

Twenty-two states announced plans this month to cut federal pandemic-related unemployment benefits by mid-June. That includes programs like Pandemic Unemployment Assistance, which extends benefits to typically ineligible parties like independent contractors and the self-employed, and Pandemic Emergency Unemployment Compensation, available after regular benefits are exhausted. Both of those programs are set to expire nationwide in September.

Roughly 3.5 million Americans will lose the USD300 weekly top off beginning in mid-June, according to an Oxford Economics analysis published this week. Of that number, 2.5 million will lose all benefits, reducing household income in affected states by USD1.8 billion per week.

BONUSES

Some states, like Montana, have announced plans to replace their federal UI programs with return-to-work bonus programs to pull hesitant workers back to the labor market. That should put some downward pressure on earnings, Petrosky-Nadeau said, as recipients of incentives like hiring bonuses are more likely to accept lower paying jobs.

Bonuses also increase the likelihood that workers will accept job offers more quickly, he said, though that might not translate directly into a sustainable labor market recovery and some individuals could be hastily jumping into jobs that won't be "durable" matches.

"The fundamental role of UI is to give individuals the time to find the right firms and jobs," he said. "It also ensures that firms find the right employees that are a good fit for their industry, their particular job, and who are likely to stay with them for a longer period of time because it's costly in most occupations to hire and train individuals."