Ending Unemployment Benefits Fails to Speed Up Economic Recovery

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ByJulija A.
July 28, 2021

Opting out of the federal programs providing COVID-19 unemployment benefits has failed to boost employment rates in the 25 US states that have decided to end their participation in these programs, according to an analysis published by Arindrajit Dube, an economics professor at the University of Massachusetts Amherst.

The cuts to benefits reduced unemployment rolls by 60% in those states. The move was expected to stimulate people to get a new job, but instead, the rates of employed adults dropped by 1.4%, dashing hopes for the job market’s speedy recovery.

The federal measures were designed to help people whose jobs have been affected by the COVID-19 pandemic, and provide benefits such as weekly $300 payments for those who lost their jobs due to lockdowns and COVID-related economic difficulties.

According to some state governors, the financial assistance was holding people back from looking for work, thus slowing down the economic recovery. However, the situation may be much more complex than that. 

Overall, the mid-June expirations of pandemic UI seem to have sharply reduced the share of the population receiving any unemployment benefits. But this doesn’t seem to have translated into most of these individuals having jobs in the first 2-3 weeks following expiration. However, there is evidence that the reduced UI benefits increased self-reported hardship in paying for regular expenses. Of course, this evidence is still early, and more data is needed to paint a fuller picture,stated Dube in his report issued on July 18.

One of the reasons people have not simply rushed to find work after their benefits have been revoked might lie in the spread of the Delta strain and a new wave of fear and anxiety this has caused. Staying home may be the safest option under these circumstances, but it has had a massive negative impact on many families’ financial situations. The cuts to unemployment benefits could further exacerbate the problem and force more people to apply for debt consolidation loans to get their finances back on track.

About author

Albert Einstein is said to have identified compound interest as mankind’s greatest invention. That story’s probably apocryphal, but it conveys a deep truth about the power of fiscal policy to change the world along with our daily lives. Civilization became possible only when Sumerians of the Bronze Age invented money. Today, economic issues influence every aspect of daily life. My job at Fortunly is an opportunity to analyze government policies and banking practices, sharing the results of my research in articles that can help you make better, smarter decisions for yourself and your family.

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