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October 3, 2024

Job search and unemployment insurance

Do expanded unemployment benefits lower job-finding rates?

Tyler Smith

President Trump signs a $2.2 trillion assistance package to help American workers, small businesses, and industries hurt by the economic disruption caused by the COVID-19 outbreak.

Source: The White House, Public domain

Economic theory suggests that unemployment benefits incentivize people to stay unemployed. But in a paper in the American Economic Review, authors Peter Ganong, Fiona Greig, Pascal Noel, Daniel M. Sullivan, and Joseph Vavra show that temporary unemployment insurance (UI) supplements provided during the largest increase to UI benefits in US history had little impact on job finding. 

During the COVID-19 pandemic, the federal government added $300–$600 per week on top of regular UI benefits. This temporary increase was so large that most recipients received more income from unemployment than they had from their prior jobs.

Figure 4 from the authors’ paper shows what happened to the rate at which the unemployed found jobs between February of 2020 and February of 2021.

Figure 4 from Ganong et al. (2024)

The blue squares represent the weekly exit rates from unemployment benefits to new jobs, as seen in data from 44 million households with a checking account at JPMorgan Chase. The gray shaded regions indicate when the expanded UI benefits were available. 

At the start of the pandemic, the new job-finding rate dropped by 4 percentage points and remained depressed when the $600 supplements began. After the $600 supplements expired, there was a small increase in the job-finding rate, which was then followed by a small decline when the $300 supplements began.

The pattern suggests that the additional UI benefits only modestly reduced job-finding rates, a result that the authors confirm with more sophisticated modeling and estimation techniques.

The researchers also found that the supplemental UI benefits significantly increased spending. Overall, the findings suggest that temporary benefit supplements are a promising tool for countering economic downturns.