Shawn Vestal: Conventional wisdom on hiring crisis isn’t holding water

As the sun sets on the expanded federal unemployment benefits, it’s interesting to note how the conventional wisdom about the effect of these extra payments has panned out.

The extra payments have been widely assumed to be to blame for the serious problems that employers – particularly in the service industry – have been having in filling positions. It seems to make sense, after all, and there is research from before the pandemic that indicates generous unemployment benefits can affect the willingness of workers to accept or apply for jobs.

But the fact that many red states stopped paying the additional federal benefits sooner than blue states provided researchers a side-by-side comparison, and that assumption has not, so far, been borne out. Early research shows little to no difference in the hiring patterns between states that ended the benefits early and those that did not.

We’re part of an illustrative example right here: Washington, which kept disbursing federal benefits and even added its own extra benefits for a time, saw its workforce grow by 5.3% – around 200,000 jobs – from August 2020 until August 2021.

Idaho, which eliminated the extra payment in June, had an increase of 3.8% – or about 28,000 jobs.

Washington also had a bigger drop in its unemployment rate over that period – a drop of 9.1%, compared to Idaho’s drop of 4.9%.

And Idaho faces a labor shortage just as we do, and just as every state does. From July to August, Washington added 17,000 jobs – and Idaho added a number the Bureau of Labor Statistics considers “statistically insignificant.”

In other words, here in our neck of the woods, these differences in unemployment payments did not show up

What that does or does not prove is, at this point, a subject for a thousand debates and suppositions. There are many other economic and pandemic differences between our states, and we don’t yet know anything about how the end of the jobless benefits this month in Washington will affect the months to come.

But it surely doesn’t bolster the argument that the benefits are to blame, and neither do other side-by-side comparisons among states.

Again, it’s important to emphasize that it’s early in the research cycle and that trying to pin single, simple causes on economic activity can be a fool’s errand. There is an obvious and significant hiring shortage across the country, and especially in the service industry. Some 80% of school districts nationwide can’t hire enough bus drivers right now.

In and of themselves, though, the expanded benefits don’t seem to explain it.

Most of the evidence from the 26 states that ended pandemic benefits early, according to a review of several studies by the New York Times, shows little to no difference in hiring between states that cut the benefits and those that did not. And there was a notable negative effect from ending the benefits: Millions of people had less household income and therefore spent less, depriving local economies of that money and hurting a lot of families with kids.

One study found that, across all 22 states that ended the extra payments last June (as Idaho did), there was an average loss of $278 in benefits – and an average increase in wages of $4. Clearly, there’s more going on than lazy people being overpaid to stay home.

The expansion of unemployment benefits came with the CARES Act in March 2020, adding a $600 weekly stipend to those receiving unemployment benefits. That expired last June, and a $300 added benefit was added in January 2021. Those added benefits have been an important lifeline for millions of workers who lost their jobs or could not work for health reasons and providing economic boosts to the communities where they spent that money.

A team of researchers from Harvard and Columbia universities, among others, compared more than 18,000 workers who were receiving the extra benefits at the end of April and found those states that ended the extra benefits thereafter did see a somewhat larger increase in hiring – 26% of those whose extra benefits ended in June had returned to work by early August, compared to 22% of those in states whose benefits continued.

But the vast majority of those whose extra benefits were cut off did not return to work. Looking at the employment data in 19 states that ended extra benefits, these researchers found that roughly 1.1 million people lost extra benefits in June, and only about 145,000 found jobs by August. And many states that continued benefits showed stronger hiring recoveries than those that did not. There was simply not a strong cause-and-effect.

Another study by the J.P. Morgan Chase and Co. Institute, published in July, concluded that the effect of the additional benefits on job-finding activities through May was small.

“This suggests that UI supplements were not holding back the labor market recovery in a very significant way or contributing to wage growth that has occurred at the bottom of the income distribution,” the authors concluded.

Like the authors of the first study, the Chase report also highlighted the benefits of the added payments and suggested they might be more finely tailored to help workers during future recessions – tailored to help prevent rewarding the choice not to work.

There’s clearly something going on in the workforce. Lots of people have surmised that many workers have adjusted their willingness to accept the low pay and trying conditions at the bottom of the labor market. Some have noted the record speed of the increased hiring simply is outpacing the speed of job-searchers.

Whatever it is, it doesn’t seem that the benefits are to blame.