Employment Effects of Ending of Expanded Federal Unemployment Benefits

Noah Williams

Executive Summary:

Beginning in May a number of states announced that they would be ending participation in the federal enhanced and expanded unemployment insurance (UI) benefit programs instituted during the COVID-19 pandemic.  In this brief, I focus on the first 12 of these: the four states who ended benefits on June 12, and the additional eight states ending on June 19. I use private data from Homebase, which provides daily employment records for a sample of mostly small
businesses with hourly workers, largely concentrated in accommodation and food services. This sample was hit hard by the COVID-19 pandemic recession, and due to its lower average wages, would likely be most affected by disincentive effects of the enhanced UI benefits.

I find a notable, but modest, employment impact of the enhanced unemployment benefit termination. Shortly after the states announced they would be ending the federal UI enhancements in mid-May, employment in the terminating states began increasing relative to the rest of the United States. Two weeks after the announcements, employment among these lower wage hourly workers increased by about 1.5% on average in the terminating states relative to the rest of the US. After this two week adjustment period, the employment gap was relatively stable over the rest of the sample, apart from closures for the Independence Day holiday. While employment has continued to recover in this sector across the US, the termination of the enhanced federal unemployment benefits seems to have provided a modest employment boost.

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