‘No evidence’: State cuts in jobless aid have little effect on unemployment

Only eight of the 26 states that cut off federal jobless benefits early saw a statistically significant drop in unemployment in July, government data released Friday shows, undermining a key Republican argument for ending the enhanced aid.

Nine states and the District of Columbia that did not end the benefits also saw statistically significant declines in unemployment, muddying the waters as economists and policymakers search for any indication that the decision by some governors to discontinue emergency unemployment insurance before its Sept. 6 expiration date might have had broader ramifications for the labor market.

"There's no sign of the end of supplemental UI" affecting employment, said Mark Zandi, chief economist at Moody's Analytics. "There's just no evidence."

The governors who made the move, mostly in Republican-controlled states, cited employer complaints about worker shortages, some of which they attributed to generous unemployment benefits.

Georgia, Louisiana, Texas and West Virginia experienced a 0.3 percent fall in unemployment, while Nebraska, Oklahoma, Tennessee and Wyoming all saw a 0.2 percent decline, according to the Bureau of Labor Statistics data. All except Louisiana and Tennessee cut off emergency unemployment insurance in June. (Louisiana ended benefits on July 31, while Tennessee ended them July 3.)

"It would show up in the July data," Zandi said. "But the increase in jobs in July is no different from the increase in jobs in June. In fact, it's a little bit less."

With the exception of Louisiana, Texas and Wyoming, all of the states that cut off benefits have unemployment rates below the national average of 5.4 percent.

Some economists have cautioned not to read too much into the numbers since the survey was taken with the economy still in flux and the data will eventually be revised. "We may see things change when we get revisions in," Zandi said.

The CARES Act, the Covid-19 relief legislation enacted in March 2020, created a trio of unemployment insurance programs — Federal Pandemic Unemployment Compensation, Pandemic Unemployment Assistance and Pandemic Emergency Unemployment Compensation — that gave jobless workers an extra $300 a week, extended benefits to those such as gig workers who were not traditionally eligible, and lengthened the duration of state unemployment insurance, respectively.

The left-leaning Century Foundation estimated that the national Sept. 6 end date would leave 7.5 million workers without any kind of benefits.

An independent group of researchers on Friday released an analysis of data from Earnin, an app that tracks wages, that found that for every eight workers who lost jobless benefits, only one had found a job by August. Any additional earnings accounted for just 7 percent of the lost benefits. At the same time, spending dropped sharply, by about 20 percent.

"There's a pretty minimal impact in terms of people going back to work, and a much more significant impact in terms of loss of income and consequent drops in spending," said Rachel Deutsch, director of worker justice campaigns at the progressive Center for Popular Democracy.

Legal aid organizations — often with the help of national advocates — in several states have filed lawsuits arguing that their governors’ decision to cut off the federal programs violates state law. Groups representing workers in Indiana, Maryland, Oklahoma and Arkansas have secured injunctions to restore the benefit programs while the lawsuits play out in court.

Despite an uptick in Covid-19 cases — and the resulting restrictions — the White House and Congress are not exploring extending the federal unemployment insurance.

That decision was solidified Thursday in a letter sent to Congress by the Treasury and Labor secretaries — though they also suggested that states where unemployment remains high could use other emergency federal aid to continue the programs.

Friday's data strengthens the argument for UI reform, worker advocates said.

"This all demonstrates the importance of reforming unemployment insurance," said Alexa Tapia, unemployment insurance campaign coordinator at the National Employment Law Project. "This crisis exacerbated existing inequities, and it also was made worse by under-resourced state agencies and a patchwork of programs and policies. So we're really hoping that as the White House indicated yesterday, Congress will reform unemployment insurance so that when, not if, the next recession happens, we can have a better support for workers in place."

The premature cutoff will have a disproportionate impact on Black and Latino workers and, some economists say, could have lasting repercussions for them. Of the 17.4 million workers who applied for and received unemployment benefits between January and May, 21.5 percent were Latino and 18.4 percent were Black, Census data show. That’s greater than their respective shares of the overall workforce: About 18 percent of employees in 2020 were Latino while 12 percent were Black, according to the Bureau of Labor Statistics.