In the wake of the Great Recession, House Speaker Nancy Pelosi (D-CA) in 2010 hailed the supposed job-stimulating effects of expanded unemployment benefits, saying “It injects demand into the economy. . . . It creates jobs faster than almost any other initiative you can name.” But in 2021, key employment data rebut that claim. This year, employment growth accelerated after record extended and expanded federal unemployment benefits ended.

Early 2021 saw several extensions of expanded federal unemployment benefits that began in March 2020 as a response to the pandemic. Those expansions offered (1) broader eligibility for weekly unemployment benefit checks, including for independent contractors and the self-employed; (2) more than a year of additional federal benefit checks for those exhausting up to six months of state benefits; and (3) an additional $300 per week on top of other unemployment benefits. That package of benefits was extended in bipartisan legislation in December 2020 and then continued again in the Democrats’ partisan $1.9 trillion March American Rescue Plan, nominally through Labor Day.

But starting in June, half of all states — 25 with Republican governors plus Louisiana headed by Democratic governor John Bel Edwards — made the extraordinary decision to end those elevated federal benefits. (Two states — Maryland and Indiana — were subsequently blocked from ending benefits by court cases). Leaders in these “opt-out states” argued the benefits — which often exceeded workers’ wages — were keeping workers from returning to the job and slowing the recovery. Most states ended all federal benefits, starting in June or July, while some ended just the $300-per-week bonuses. And then on Labor Day all federal unemployment benefits expired in all remaining states. That hard cutoff was the largest benefits cliff in US history — causing 7.5 million individuals to lose unemployment checks altogether and millions more to see weekly benefits reduced.

By Speaker Pelosi’s prior logic,
that enormous drop in benefit payments should have at the very least slowed
employment growth. Instead, as the table below displays, in the five months
since states started opting out of federal benefits, US employment increased far
more rapidly than in the five prior months when these benefits were still paid
in all states.

As the table shows, while unemployment benefit claims across the US plummeted by 84 percent between June and November, employment growth more than doubled compared with the January to June period when extraordinary federal benefits were paid in all states to millions more recipients.

Differences between opt-out states,
where benefits ended sooner, and Labor Day cliff states reinforce that trend.
The table below shows the change in employment among those groups of states for
the five months between May (that is, before states started opting out) and
October (the latest current state-by-state data).

Since May, employment has grown almost twice as fast in percentage terms in the opt-out states where benefits ended sooner. These data are even more impressive given lower starting unemployment rates in opt-out states, which make achieving significant employment gains relatively harder. May unemployment rates averaged 4.6 percent in opt-out states versus 5.9 percent elsewhere.

The US labor market is complex and has been affected by numerous factors as it emerges from the pandemic, including an unprecedented $700 billion in federal unemployment benefits. While job creation this year still hasn’t met Democrats’ promises under their $1.9 trillion American Rescue Plan, there have been significant gains as the nation climbs out of the deep pandemic employment abyss. The latest data indicate that employment growth accelerated this year after extraordinary unemployment benefits came to an end, and the improvement has been stronger in states that first ended those benefits this summer. That’s worth recalling if future policymakers dust off Speaker Pelosi’s claim that paying extraordinary unemployment benefits is the best stimulus for job creation.

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