The American Rescue Plan Act (ARPA) temporarily increased the duration, coverage, and generosity of unemployment insurance (UI) benefits until September 6 of this year. Between June 12 and July 10, all twenty-five GOP-led states prematurely eliminated these benefit increases for their residents and the Biden administration declined to use its statutory authority to prevent these cuts.
Early data from the Census Household Pulse Survey show that these cuts have been effective at removing people from the unemployment rolls but not successful at increasing employment. If this data is accurate then it suggests that, when these same cuts hit the more populous other half of states on September 6, they will do enormous damage to tens of millions of Americans.
Following the approach of Arin Dube, I analyzed the last six pulse survey files, which cover April 14 through July 5. I start my analysis by dividing the states into three groups. The first group — Alaska, Mississippi, Missouri, Iowa, Alabama, Idaho, Indiana, Nebraska, New Hampshire, North Dakota, West Virginia, and Wyoming — cut UI benefits in early June. The second group — Arkansas, Florida, Georgia, Ohio, Oklahoma, South Dakota, Texas, Utah, Montana, South Carolina, Maryland, Tennessee, and Arizona — cut UI benefits in late June and early July. The third group consists of all of the remaining states, which have not cut UI benefits but will see those benefits cut on September 6 unless Congress acts.
The effect of UI cuts should be apparent in the first group of states because the last wave of pulse data was collected entirely after those cuts occurred. For the second group of states, the effect of the cuts should be apparent in the next wave of pulse data, which has not yet been released. For the third group, there should be no detectable change because no cuts have occurred in those states.
To measure the effect of these cuts, I initially calculated the average number of people in each state group who were receiving weekly unemployment benefits in the seven weeks prior to the first cuts. Then I looked at how the number of weekly UI recipients changed shortly after that. Among the states that cut benefits in early June, the number of people receiving UI declined by 52.2 percent. Over the same period, the states that cut benefits in late June and early July saw their UI rolls decline by 6.9 percent while the states that made no cuts saw their rolls decline by 3.2 percent.
These numbers actually understate how deep the cuts were in the Early June states. Half of the recipients had their benefits cut entirely, as reflected in the graph, while the other half had their benefit levels cut by $300 per week, which is equivalent to a cut of $15,600 per year.
The given reason for doing these cuts was to increase employment in these states by moving people off of the dole and into workplaces. But employment did not increase in the Early June states. In fact, it slightly decreased (-0.4 percent) according to the pulse data.
The one saving grace of this whole debacle so far has been that the majority of the population (unemployed or otherwise) live in the states that have not yet cut benefits. But those cuts are coming on September 6 and are likely to be quite devastating in their magnitude.
According to the latest pulse data, there are seven million individuals receiving unemployment insurance in the states that have not yet cut UI benefits. Those individuals live in households with an average of 3.7 members, bringing the total number of people who directly or indirectly receive this UI income to twenty-six million. If we optimistically assume that 1.5 million of the direct UI recipients come off the rolls before September 6, that leaves us with 5.5 million people on UI and 20.5 million living in households on UI.
Based on the experience of the Early June states, the September 6 cuts will entirely eliminate UI benefits that over ten million people are relying upon and steeply cut (by $300 per week) the benefits of the remaining ten million people.
Needless to say, the Democrats should do whatever it takes to prevent such a catastrophe from occurring while also taking steps to restore unemployment benefits to individuals who have already seen them prematurely cut off. In practical terms, this means that the Democrats need to include further UI extensions in the next reconciliation bill while also ensuring that the federal government will step in and directly administer UI for the residents of any state where the governor refuses to play ball.