Historic Unemployment Benefits Experiment Finds Results : Planet Money : The Indicator from Planet Money Early this summer, the U.S. inadvertently launched one of the largest unemployment experiments in history to see if unemployment benefits impact worker shortages. Today on the show, we find the answer.

Did Ending Pandemic UI Benefits Push Americans Back To Work?

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SYLVIE DOUGLIS, BYLINE: NPR.

(SOUNDBITE OF DROP ELECTRIC SONG, "WAKING UP TO THE FIRE")

SALLY HERSHIPS, HOST:

This is THE INDICATOR FROM PLANET MONEY. I'm Sally Herships in for Stacey Vanek Smith. And I am joined today by NPR's Scott Horsley for a kind of follow-up to an episode we did back in June.

SCOTT HORSLEY, BYLINE: That's right. It was an episode about unemployment benefits. Back at the beginning of the pandemic, when millions of people were suddenly thrown out of work, Congress authorized a big expansion of who could qualify for unemployment and also made the benefits much more generous than usual.

HERSHIPS: So generous, in fact, that some businesses started to complain that the benefits were actually discouraging people from going back to work.

HORSLEY: And those complaints struck a chord with a lot of governors, especially Republican governors, who decided this summer it was time to cut off the extra benefits in hopes that would push more people to go out and find jobs.

HERSHIPS: Now, when we first reported on this back in June, about half the states had announced plans to cut off pandemic unemployment benefits. The remaining states, though, left the benefits in place, and that set up what we described as a natural experiment.

MICHAEL STEPNER: It is the kind of experiment that academics would never be authorized to do.

HERSHIPS: Michael Stepner is an economist at the University of Toronto. And the reason that academics would never be allowed to do this kind of experiment is because it's so consequential. So it's been left to the politicians.

STEPNER: This is, in some ways, the biggest experiment in unemployment insurance policy in U.S. history.

HORSLEY: Michael and his colleagues have been tracking unemployed workers in states that did and did not cut off the benefits to see who went back to work more quickly.

STEPNER: Initially, economists really weren't sure. It could have gone either way.

HORSLEY: Now the results of this experiment are in. And the timing is interesting because all those other states, the ones that kept paying benefits during the summer, they're cutting off benefits this week.

HERSHIPS: Today on the show, Michael's grand experiment gives us some idea of what to expect. That's after the break.

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HERSHIPS: Hiring slowed really sharply last month. U.S. employers added just 235,000 jobs in August. Restaurants and stores actually cut workers as a new wave of coronavirus cases made people nervous about eating out and in-person shopping.

HORSLEY: But in the two months before that, the economy was adding tons of jobs - more than a million jobs in July alone. It seemed like there were help wanted signs everywhere.

HERSHIPS: A lot of employers were complaining that they couldn't find enough workers, and some of them blamed the relatively generous unemployment benefits. And that was the logic behind the states that decided to end those benefits early, which is what set up Michael's experiment.

STEPNER: If you speak to business owners, they say, we've got jobs open. We can't fill them. And the thought was that the reason they can't fill them is because people would rather be on unemployment benefits than out applying for work. And as soon as we remove those benefits, the labor market would start booming, people would start returning to work, businesses would find the workers they're looking for and all would be well.

HORSLEY: Now, that might have been a reasonable theory, but it's not what actually happened. As we've talked about on THE INDICATOR before, some earlier research showed unemployed workers in states that took away benefits were only a little more likely to find jobs than those in states that left the benefits in place.

HERSHIPS: And now Michael's research is showing exactly the same thing.

HORSLEY: That's right. In Michael's experiment, 25% of the workers who lost their benefits in June had gone back to work by August. Now, in states that left the benefits in place, 21% of unemployed people found jobs. So there was only a four percentage point difference when these benefits went away.

HERSHIPS: So all those employers were pointing to the benefits as the cause of all of these workers not taking jobs. Michael's research says that is not what happened.

STEPNER: The thought was that removing people's benefits would really produce a surge in employment, and that's not what we see panning out.

HORSLEY: But Michael and his colleagues found taking away benefits does make a big difference in another way - not a good way - and that's people's spending. Remember, three-quarters of the people who lost benefits early in the summer did not find jobs right away. So they no longer had unemployment benefits, but they didn't have a paycheck, either. Not surprisingly, they spent less at the grocery store, the gas station, the local restaurant.

HERSHIPS: And what this means is those states that ended benefits early, they turned down billions of dollars in federal unemployment aid, and it ended up backfiring for their local economies.

STEPNER: So basically, instead of receiving money from the federal government and putting it into the hands of businesses in the local community, the money stayed in the coffers of the federal government.

HORSLEY: And Michael says that drop in spending is a preview of what we can expect in the remaining states, when benefits run out for millions of people this week.

STEPNER: Taking away their benefits is not going to send them back to work. It's really going to increase poverty and reduce people's spending. And that has ripple effects through the economy.

HERSHIPS: As of mid-August, there were more than 12 million people getting some form of unemployment assistance in the U.S. More than 9 million of those were enrolled in the emergency programs that are just coming to an end.

MARIANNE LEBLANC: I'm panic-stricken. I'm literally about to jump off a financial collapse.

HERSHIPS: Marianne Leblanc (ph) lives in Las Vegas where for years, she helped stage corporate events like the Consumer Electronics Show. But that work dried up during the pandemic, and it's been slow to come back.

HORSLEY: Marianne has found a few days' work here and there, but nothing steady. And now, with a spike in new coronavirus cases tied to the delta variant, she's worried companies are going to be even more cautious about holding the kind of in-person get-togethers that were her bread and butter.

LEBLANC: I was doing a project the week that all the mask mandates went back into play. We all looked at each other like, oh, God, is this all going to happen again? Just when you think you might see the light at the end of the tunnel, it's gone again.

HERSHIPS: Marianne has a daughter in college and an ex-husband in the same industry. He is also out of work. Nevada has the nation's highest unemployment rate, and its recovery in particular has been painfully slow. Even in July, when the country added more than a million jobs, Nevada added only about 5,000. That is a tiny number. At that rate, it would take two years to put everyone in the state back to work.

LEBLANC: I literally have gone on two major interviews where I've had five Zoom interviews with the company, they've actually flown me out to their headquarters, I've spent two days with them to go home and not hear anything back. To say that it's an easy job market, I beg to differ.

HORSLEY: Before the pandemic, Marianne was saving to buy a house, but now she's burned through a lot of those savings. And with unemployment benefits running out, she's worried about just paying the rent.

LEBLANC: The emotional rollercoaster that we have been on - I mean, it's not like we're bad workers. We were just honest people doing our job. It's like being cut off mid-sentence. And you have so much more to say, and there's nothing you can do about it because it's gone.

HERSHIPS: And things may be about to get much worse. Over the summer, unemployment benefits were putting more than $30 billion a month into the pockets of jobless workers. But after this week, Wells Fargo estimates that is going to drop to about 3 billion.

HORSLEY: Most people on unemployment are getting cut off entirely. The rest will see their benefits reduced by $300 a week. Now, some of those lost benefits will eventually be replaced by wages, once people find work. But Marianne wonders, what's going to happen in the meantime?

LEBLANC: We're going to just all of a sudden look at the country at large and say, these people are expendable, that we're not going to care, that we are just dumping these people off the side of a cliff? Those are people that buy groceries and they put gas in their car and they frequent local businesses. When that money is not there, it's not just going to be the person that's unemployed that's going to suffer. It's going to be the entire community that's got to suffer.

HERSHIPS: The Biden administration says in states like Nevada, where unemployment is still high, it might be appropriate to use other federal dollars to extend jobless benefits. So far, though, no states have announced plans to do so.

HORSLEY: So we're about to embark on another phase in this big national experiment. We're about to find out what happens to families and businesses when you cut benefits to millions of people in all 50 states in the middle of a pandemic, just as hiring slows down.

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HERSHIPS: This episode was produced by Brittany Cronin, with help from Alex Drewenskus. It was fact-checked by Kaitlyn Nicholas (ph). Our editor is Kate Concannon, and THE INDICATOR is a production of NPR.

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