Federally expanded unemployment insurance (UI) benefits have ended across the U.S. In Kentucky, this will impact more than 56,000 workers who had continued UI claims through the beginning of August.
In June 2021, almost half of states ended access to the federal expansion of UI benefits. Research using data from Earnin, a financial services company, compares the economic outcomes for states that ended expanded UI benefits early to states that did not withdraw from the expanded benefits programs. This comparison reveals the impact of losing access to the expanded benefits, and what we might expect as the programs end across the U.S.
Within the 21 states that ended supplemental pandemic unemployment insurance benefits in June, 2 million workers lost access to all benefits. These workers were receiving benefits they would otherwise be ineligible for because they did not qualify for regular state-provided benefits, either because they were self-employed or an independent contractor, or because they had exhausted their receipt of regular benefits. Another 1 million workers lost access to an additional $300 per week in benefits, but still had access to regular state benefits.
For every eight workers who lost their benefits in early withdrawal states, only one had gained employment eight weeks later. Employment levels were 4% higher in early August compared to states that continued to provide expanded benefits. However, early withdrawal states saw a 35% decline in the number of workers with access to any benefits, compared to states that did not end the expanded benefits early.
Because there were so many more workers who lost access to benefits and did not find employment, early withdrawal states experienced a significant decline in consumer spending. On net, early withdrawal resulted in losing $4 billion in federal transfers in the form of benefits. Earnings only increased by $270 million because many workers who lost benefits did not find employment. As a result, spending was reduced by $2 billion in early withdrawal states.
On an individual basis, the average UI beneficiary experienced a loss of benefits amounting to $278 per week and only gained an average of $14 per week in earnings. New earnings therefore only accounted for 5% of lost benefits. This resulted in a reduction of $145 per week (-20%) in spending.
This research indicates that ending the supplemental pandemic UI programs will not immediately increase employment levels, but will have an immediate effect on household spending. Reduced spending levels along with the spread of the Delta variant could impact the trajectory of the economic recovery. Communities will also be impacted as affected households are more likely to face housing and food insecurity as a result of losing access to their benefits.
The marginal improvement in employment levels in states that withdrew from the expanded UI benefits early indicates that access to the benefits were not the primary factor keeping people from working. Other factors such as care responsibilities, fears related to the virus, and job mismatch appear to be playing a significant role in the current labor market tension.
