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US jobs may fail to get boost from end of extra COVID-19 unemployment support

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US jobs may fail to get boost from end of extra COVID-19 unemployment support

This is the second of a three-part series exploring key hurdles in the U.S. labor market's recovery, including persistent COVID-19 fears, the end of extra federal unemployment pay and a lack of child care options for parents of young children.

The nationwide end of pandemic unemployment support may fail to spur a U.S. jobs bonanza, given the limited benefit to states that scrapped the extra benefits early.

So far, there has been little difference in jobs-growth rates between states that axed the payouts ahead of time — including Georgia, Tennessee, Texas and Florida — and states that retained the extra funding until it ended nationwide in September, according to S&P Global Market Intelligence analysis of Bureau of Labor Statistics data. Jobs increased 1.29% from May to August in the 26 mainly Republican-led states that pulled the plug in June and July versus 1.25% in states that kept the benefit in place.

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The near-identical changes suggest that concerns about catching COVID-19 or child care difficulties may be greater drags on employment than the availability of an extra $300 in weekly unemployment benefits. It also signals that September employment data, due Oct. 8, is unlikely to show a significant jobs boom, even with record open positions and the abolition of pandemic support.

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Part one: Pandemic fears squeeze labor market as millions of Americans stay home

Part two: US jobs may fail to get boost from end of extra COVID-19 unemployment support

Part three: Child care shortage shuts millions of Americans out of workforce

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"We don't have a good reason to think that there's going to be a major difference," said Kyle Coombs, a fifth-year Ph.D. candidate in economics at Columbia University. The pandemic payouts are "not a chokehold" on employment, Coombs said.

Coombs led a study by economists that found a "barely significant" difference in employment levels among nearly 19,000 low-income Americans, spread across states that ended the extra payments early and those that did not. Employment was just 4% higher in states that had halted payments, even though low-income Americans would be hit hardest by the stoppage, according to the team's Aug. 20 paper.

"There is no real evidence to suggest that those states that ended unemployment benefits early are reaping the benefits," said James Knightley, chief international economist with ING. "People are in no rush to return to work."

Still, the early end of benefits did make it more likely that some unemployed people would find work, particularly those who lost all support, Joseph Briggs, a Goldman Sachs economist, wrote in a Sept. 16 note. Briggs expects that the nationwide end of the benefits will boost job growth by 1.3 million, helping to reduce the unemployment rate to 4.2% by around the end of the year from 5.2% in August.

Ending benefits early did little to boost long-term job numbers. The average employment level for states with an early halt had only risen 11.6% as of August versus pandemic lows posted in April 2020. That trailed a 12.6% increase for states that kept the benefit in place, based on Census Bureau figures.

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That lackluster growth upended expectations about the impact of benefit cuts, said Matt Bruenig, founder of the People's Policy Project, a think tank that focuses on labor and economic equity issues.

"It just stands to reason that if you cut benefits that brutally, then job search intensity would go up," Bruenig said in an interview. "That just didn't happen."