A person reads a list of employers while attending a job fair on September 9, 2021 at SoFi Stadium in Inglewood, Calif.

PATRICK T. FALLON | AFP | Getty Images

According to economists, there is little evidence that states successfully returned people to work by ending federal unemployment benefits early.

Twenty-six states withdrew unemployment benefits during the pandemic-era in June or July. Its governors, mostly Republicans, believed that improved unemployment benefits provided an incentive to stay home instead of work.

Data suggests that other factors play a bigger role, according to economists. They cite persistent health concerns, childcare issues, and expanded savings on a variety of issues that marginalize workers even at record-breaking jobs.

In the remaining states, state benefit programs officially ended on Labor Day. This “unemployment cliff” affected more than 8.5 million people, all of whom lost their benefits, according to Labor Department data released Thursday.

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The subdued response from workers to the first cliff in unemployment (i.e. in the states that withdrew prematurely) suggests that the end of Labor Day will not spike any spike in employment growth, either, according to economists.

“If that’s some kind of forerunner, I’m not betting on the end of the federal benefits” [on Labor Day] is a really clear and sharp turning point, “said AnnElizabeth Konkel, employment economist at Job Site Indeed.

State economies differ (for example, in terms of job mix and worker demographics), which makes comparisons and predictions difficult, she said.

‘Urgent Problem’

Understanding how the unemployment cliff will affect the US labor market is a “pressing matter,” according to a research note published Thursday by JPMorgan Chase Bank, authored by economist Peter McCrory.

For example, those unable to find work or return to work can run into financial difficulties and withdraw their spending, potentially having a negative impact on the local economy.

Most people (7 out of 8) who lost federal aid in June weren’t reinstated until early August, according to an article posted last month by researchers at Columbia University, Harvard University, the University of Massachusetts Amherst and the University of Toronto. That resulted in an overall spending cut of nearly $ 2 billion, they found.

JPMorgan economists have also not found a major impact on early-retirement jobs since mid-June, McCrory wrote. He examined data such as monthly government employment metrics and weekly unemployment benefits, as well as alternative measures such as dining out and Google job search.

“In fact, we find that the loss of benefits is associated with modest decreases in employment growth, income growth and labor participation,” wrote McCrory.

While there has not yet been a “flood” of workers entering the labor market in these states, it is too early to understand whether the impact will be similar in states where federal benefits will be paid on May 6, according to Daniel Zhao, op Senior Economist at Jobbörse Glassdoor. (September 6th was the official expiry of the American rescue plan, which Congress did not renew.)

There are reasons to believe the impact could be stronger in the remaining half of the states, he said. For one, the Labor Day cliff (which affected large states like California and New York) affected a greater volume of workers than it did during the summer, which may make it easier to see the impact on jobs in the available data, he said.

But the Covid Delta variant (and the associated spike in some cases) can make unemployed workers nervous and make employers struggle to find people for vacancies, especially for personal work, economists said. Increased case numbers can also affect parents’ ability to return to work, for example due to school closings or student quarantines.

Americans are still sitting on increased savings, possibly due in part to improved benefits that give unemployed workers more time to find the most suitable job, Zhao said. (Other government aid and cuts in personal activities could also have helped bolster savings during the pandemic.)