Topline
Amid reports of labor shortages and fears of economic overheating thanks to what some view as excessive government stimulus spending, a total of 26 states are now planning to end the $300 federal unemployment supplement in order to spur hiring—here’s what analysts from Goldman Sachs expect to happen once payments stop.
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Key Facts
Goldman’s analysts point out that since 25 of the states ending the benefit early only account for 29% of pandemic job losses, it’s likely that the pressures on the labor market—worker shortages and a depressed labor force participation rate—will continue until the benefits expire in every state at the beginning of September.
The analysts note that it’s too soon to say how the early end of benefits will affect official employment statistics—that insight will likely be contained in the July jobs report the Labor Department will publish in August.
That said, claims for regular state unemployment insurance benefits have fallen faster in states that have announced they will end the supplement early—the analysts say this is a “hint” that hiring will pick up once the benefits are phased out, but note that other data like the volume of job postings don’t yet support that conclusion.
The analysts say their “best guess” is that the expiring benefits will “provide a significant tailwind to hiring in the coming months,” spurring growth of more than 150,000 jobs in July and more than 400,000 jobs in September, though they note that the prediction is still uncertain.
Based on previous academic studies, the analysts estimate that a typical worker receiving regular state benefits will see those benefits drop by 50% once the $300 supplement expires in their state, and the duration of their unemployment would fall roughly 25%.
Crucial Quote
“The temporary boost in unemployment benefits . . . helped people who lost their jobs through no fault of their own and are still maybe in the process of getting vaccinated, but it’s going to expire in 90 days,” President Biden said during prepared remarks after the release of the May jobs report last week. “That makes sense.”
Big Number
$12 billion. That’s how much local economies in the 24 red states that had announced an early termination of the $300 federal supplement as of June 2 are expected to lose as a result of ending the benefit early, according to a report from Congress’ Joint Economic Committee.
Surprising Fact
On Thursday, Louisiana became the first state with a Democratic governor to announce the early expiration of the $300 supplement. The other 25 states have Republican governors.
Key Background
An emergency federal unemployment insurance supplement was first authorized in the amount of $600 per week as part of the CARES Act last year. A new supplement of $300 was authorized by executive order under President Trump after the first supplement lapsed. The $300 supplement was extended once by Congress as part of a stimulus bill last December, and again by Congress as part of President Biden’s $1.9 trillion American Rescue Plan.
Further Reading
Louisiana’s John Bel Edwards Becoming First Democratic Governor To Cut $300-A-Week Federal Unemployment Benefits (Forbes)
Biden: It ‘Makes Sense’ That $300 Unemployment Will End In September (Forbes)
California And Florida Are Sending Out More Stimulus Checks. Could Your State Be Next? (Forbes)
IRS Releases Child Tax Credit Payment Dates—Here’s When Families Can Expect Relief (Forbes)
