Nearly a month after two dozen GOP-led states started cutting the federal government’s $300 enhanced weekly benefit for the unemployed, Morgan Stanley economists say the move—which critics have called politically (and not economically) motivated—hasn’t done much to help the struggling labor market, lending little credence to the argument that ending the benefits early would accelerate a recovery by encouraging Americans to return to work.
Continued unemployment claims in states that ended benefits by June 19 declined 12% since late May, only slightly better than the 8.7% among states yet to pause the benefits early though significantly more than the mere 4% decline in states keeping the program through September, according to a Morgan Stanley report sent to clients Thursday.
Despite the seemingly stark divide, the economists point out that four states alone (California, Kentucky, Kansas and Washington) largely skewed down the data for states ending the benefits in September, revealing they otherwise performed on par with the states ending benefits early.
In light of the lackluster differences, the Morgan Stanley economists said there has been “only mixed evidence” on whether ending the weekly benefits has moved the needle on labor supply.
The analysts still expect a bump in labor supply later this summer as all federal supplementary benefit programs come to an expected end in September, but they note the decline in continuing claims could be partly due to recipients reaching the end of their benefit year—and not necessarily people returning to work because they’re no longer receiving enhanced benefits.
A total of 22 states, representing nearly 30% of all unemployment recipients, have ended the supplemental federal benefits program—all spanning from June 12 to July 3—with another two states slated to do so before month’s end.
According to data released Thursday morning, the number of first-time jobless claims last week unexpectedly rose to 373,000, and more than 14.2 million Americans were still receiving some form of unemployment benefit in the week ending June 19 (the latest data available).
“It appears that generous unemployment benefits are likely no more of a factor than other impediments, including childcare, transportation and health concerns, to workplace re-entry,” the group of economists led by Sarah Wolfe and Ellen Zentner wrote. “Although state-level data in coming weeks will be important, the bottom line is: Stripping out the disincentive effect of unemployment benefits on the labor market recovery is not simple.”
In May, officials in 26 states started announcing they will force an early end to the federal government’s supplemental unemployment benefits program, which provides an extra $300 a week to jobless Americans, as many GOP lawmakers argued the payments disincentivize workers to look for jobs and were leading to widespread labor shortages. However, in a note to clients last month, JPMorgan economists said the early end to unemployment insurance looks “tied to politics, not economics.” They pointed out many of the states that have announced the early reduction (all but one of which are led by Republican governors) are not showing signs of a tight labor market nor strong earnings growth—two factors used to justify ending the enhanced benefits.
4 million. That’s roughly how many Americans will lose out on the extra $300 per week as a result of the early terminations, according to Morgan Stanley.
Earlier this month, judges in Maryland and Indiana ordered the states halt their efforts to end the weekly benefits early. In Maryland, Judge Lawrence Fletcher-Hill argued the state likely doesn’t have the power to turn down unemployment money offered up for free by the federal government.