Yale study finds expanded jobless benefits did not reduce employment

A new report by Yale economists finds no evidence that the enhanced jobless benefits Congress authorized in March in response to the COVID-19 pandemic reduced employment.

The report (PDF) addresses concerns that the more generous unemployment benefits, which provide $600 per week above state unemployment insurance payments, would disincentivize work.

The researchers assessed this claim using weekly data from Homebase, a company that provides scheduling and timesheet software to small businesses throughout the United States. The findings suggest that, in the aggregate, the expanded benefits neither encouraged layoffs during the pandemic’s onset nor deterred people from returning to work once businesses began reopening.

The enhanced unemployment benefits were initiated under the CARES Act, a $2.2 trillion economic stimulus package enacted on March 27 that attempted to ease the pandemic’s severe economic consequences. The expanded benefits, which are set to expire July 31, provide a $600 weekly payment in addition to any state unemployment insurance. The supplemental payment was designed to cover 100% of the average U.S. wage when combined with existing unemployment benefits. The generosity of an individual’s unemployment benefits depends on several factors, including their earnings history and their state’s schedule of benefits.

The report found that workers receiving larger increases in unemployment benefits experienced very similar gains in employment by early May relative to workers with less-generous benefit increases. People with more generously expanded benefits also resumed working at a similar or slightly quicker rate than others did, according to the report.

“The data do not show a relationship between benefit generosity and employment paths after the CARES Act, which could be due to the collapse of labor demand during the COVID-19 crisis,” said Joseph Altonji, the Thomas DeWitt Cuyler Professor of Economics in the Faculty of Arts and Sciences, and a co-author of the report.

Critics argued that the expanded benefits, which exceeded many people’s normal weekly wages, would incentivize businesses to lay off workers to cut costs and disincentivize recipients from returning to work. If the enhanced benefits had these effects, the researchers said, the data should show a significant drop in employment in the week after the CARES Act took effect; it should also show subsequent decreases in relative employment as workers with more generous unemployment benefits put off returning to work. The data did not yield results that support these predictions.

The researchers found no evidence that recipients of more generous benefits were less likely to return to work. They also found that workers who received larger increases in their unemployment benefits relative to their wages did not experience greater declines in employment after the CARES Act was enacted.

The Homebase data primarily covers small businesses that require time clocks for day-to-day operations. The majority are restaurants, bars, or retail operations. The workers represented in the dataset are hourly employees who earn relatively low wages. While the data does not represent the entire U.S. labor market, it captures a segment of it that has been disproportionately affected by the pandemic, the researchers noted.

The analysis controlled for the severity of the COVID-19 pandemic and for the various restrictions that states imposed on businesses during the public health crisis. The researchers tested their results against employment outcomes in the federal government’s Current Population Survey, a more representative sample of the labor market than the Homebase data, and obtained similar findings. But they stress that their results pertain to the current pandemic period of slack labor demand and do not speak directly to the effects of unemployment benefits on employment during normal times.

The report’s other authors are Zara Contractor, Lucas Finamor, and Dana Scott (primary author), Ph.D. candidates in the Department of Economics; Ryan Haygood, a rising senior in Yale College and research assistant at the Tobin Center; Ilse Lindenlaub, assistant professor of economics; Costas Meghir, the Douglas A Warner III Professor of Economics; Cormac O’Dea, assistant professor of economics; Liana Wang ’20 B.A., an undergraduate research assistant; and Ebonya Washington, the Samuel C. Park Jr. Professor of Economics.

The analysis, supported by Yale’s Tobin Center for Economic Policy, comes as Congress debates whether to extend the expanded unemployment benefits. The full report is available on the Tobin Center’s website.