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 benefit programs instituted during the COVID-19 pandemic. In total, 26 states decided to end their participation in these programs before their scheduled expiration in September. This note uses data from the Bureau of Labor Statistics monthly household and payroll employment surveys, which now includes data through July. Due to this data limitation, I focus on the 22 states that ended federal benefits in June.
Most of these states announced the end of the enhanced federal unemployment benefits at least one month prior to their expiration, with the earliest announcements starting in mid-May. Since the reference week for the BLS surveys is the calendar week including the 12th of the month, I take the May survey as the baseline. Grouping the states into those terminating benefits in June and the rest of the US, I then compare the growth rates of various employment indicators over the two months following May to that of the preceding two months.
While caution should be exercised given the very short data sample, the results suggest that ending enhanced benefits had a positive impact on the labor market. Across all indicators I find that the terminating states experienced improved labor market outcomes relative to the rest of the US. Employment growth accelerated by more in these states in both the household and payroll surveys, and the labor force grew more rapidly. The relative gains in private employment were even more than total employment, and employment growth in the leisure and hospitality sector was especially strong in the terminating states. This is notable since this sector was hit hard by the COVID-19 pandemic recession, and due to its low average wages, was likely most affected by disincentive effects of the enhanced unemployment benefits.