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Morgan Stanley economists say that nearly a month after two dozen GOP-led states began cutting the federal government’s $300 enhanced weekly benefit for the unemployed, the move—which critics have characterized as politically (rather than economically) motivated—has done little to help the struggling labor market, lending little credence to the argument that ending the benefits early would hasten recovery.

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According to a Morgan Stanley report sent to clients on Thursday, continued unemployment claims in states that ended benefits by June 19 fell 12 percent since late May, only slightly better than the 8.7% decline in states that have yet to pause benefits early but significantly more than the mere 4% decline in states that kept the program through September.

Despite the apparent disparity, the economists point out that four states (California, Kentucky, Kansas, and Washington) skewed the statistics for states terminating benefits in September, suggesting they fared similarly to those ending benefits early.

Given the meager differences, Morgan Stanley analysts concluded that there is “only mixed evidence” that eliminating weekly payments has shifted the labor supply needle.

Analysts expect a boost in labor supply later this summer as all federal supplementary benefit programs expire in September, but they point out that the drop in continuing claims could be due to recipients reaching the end of their benefit year, rather than people returning to work because they’re no longer receiving enhanced benefits.

The supplemental federal benefits program was terminated in 22 states, representing roughly 30% of all jobless recipients, from June 12 to July 3, with two more states expected to do so before the end of the month.

The number of first-time jobless claims unexpectedly jumped to 373,000 last week, according to figures released Thursday morning, while more than 14.2 million Americans were still receiving some form of unemployment compensation in the week ending June 19. (the latest data available).

“It indicates that generous unemployment benefits are likely no more of a role than other hurdles to workplace re-entry, such as childcare, transportation, and health concerns,” concluded the economists led by Sarah Wolfe and Ellen Zentner. “While state-level data will be crucial in the coming weeks, the bottom truth is that removing the deterrent effect of unemployment benefits on labor market recovery is not easy.”
Many Republican lawmakers argued that the payments disincentivize workers to look for work and are leading to widespread labor shortages, so officials in 26 states began announcing plans to force an early end to the federal government’s supplemental unemployment benefits program, which provides an extra $300 per week to jobless Americans. However, JPMorgan economists warned in a letter to clients last month that the early termination of unemployment insurance seemed to be “related to politics, not economics.” Many of the states that have announced the early reduction (all but one of which are run by Republican governors) are not displaying symptoms of a tight job market or robust wage growth, two grounds used to justify eliminating the increased benefits, they said.
4 million people. According to Morgan Stanley, that’s roughly how many Americans will lose out on the extra $300 each week as a result of the early terminations.
Judges in Maryland and Indiana ordered the states to halt their efforts to end the weekly payouts early earlier this month. Judge Lawrence Fletcher-Hill of Maryland argued that the state likely did not have the authority to refuse federally funded unemployment benefits.
According to Goldman Sachs, here’s what could happen if the $300 unemployment benefit expires (Forbes)
Judges have halted the termination of $300 Covid unemployment benefits in two states: Maryland and Indiana (Forbes)
Louisiana’s John Bel Edwards has become the first Democratic governor to reduce federal unemployment benefits by $300 per week (Forbes)/nRead More

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