Pandemic Unemployment Benefits End Sept. 6. It's Not Simple as to What This Will Do to the Labor Market

stock art graphic of a couple worrying about money

Unemployment benefits aimed at helping people during the pandemic expire Sept. 6, which could lead to a surge in job seekers as $300 per week supplemental unemployment payments end.

Connel Fullenkamp, a professor of the practice of economics at Duke, says there’s good reason to believe this scenario.

“Economists have estimated that nearly half of those unemployed during the pandemic recession earned a higher effective wage from their unemployment benefits than they did on the job,” says Fullenkamp, who is also director of undergraduate studies in the economics department. “For these folks, going back to work will now pay better than staying home, especially since wages have significantly increased for low-skilled jobs this year.

“But there are equally valid reasons to expect a modest flow rather than a flood of people into jobs during the coming weeks and months. The labor market -- and the people in it -- are a lot more complicated than we like to believe, and these complications will still keep many people from seeking work. For starters, the country’s schools and daycare centers still haven’t fully reopened, meaning that many adults will continue to forego work to care for young children.” 

Fuqua School finance professor David Robinson agrees, noting the situation is very complicated with no easy answers.

“These are tricky issues to analyze -- the world wants easy, sharp answers but there aren’t any,” says Robinson, whose research includes entrepreneurship and small business. “Yes, removing benefits sharpens the incentive to find work immediately, but it does little to smooth over the complexity of child care issues. It doesn’t make used cars cheaper so that people can get a second set of wheels to get to work.”

“Moreover, the problems in the labor market aren’t all supply-side issues,” he says, adding that the surge in COVID-19 cases also plays a role.

“The Delta variant has dropped a wrench in the reopening plans of many businesses. The needs of many companies are changing as they try to adapt to new circumstances. So ceasing unemployment insurance will not be a silver bullet to cure sclerosis in the labor market,” says Robinson, a former vice chair of the World Economic Forum’s Global Agenda Council on Private Capital.

Fullenkamp notes that the pandemic has radically altered the job market, too.

“Thousands of small businesses, and their jobs, disappeared and won’t come back,” Fullenkamp says. “Some industries, like home construction, received a huge boost during the pandemic, but these jobs aren’t necessarily in the same places where the unemployed people are. And job seekers may also lack the skills that are needed for the positions that are open. This was a big problem several years ago as the economy finally started to pick up steam after the global financial crisis, and is likely to be a recurring issue whenever the economy recovers from a deep recession.

“We shouldn’t overlook the fact that millions of people remain unvaccinated, and may not be willing to take jobs -- like those at hotels and restaurants -- that require high levels of close contact with customers.” 

Then there’s the effect of changed attitudes toward work since before the pandemic, both scholars say.

“The pandemic has caused millions of people to reconsider their relationship to work, and what they want from their careers,” Fullenkamp says. “They aren’t in a hurry to return to the jobs they lost, and because of unemployment benefits, multiple stimulus checks, and child tax credit payments, they may not have to any time soon.”

Robinson adds that not every household will experience the same amount of difficulty after unemployment benefits expire.

“It won’t spell doom and despair for every household,” he says. “Some will suffer more than others. Some will suffer greatly. But many will rely on the same network of friends, family, neighbors and church relations, that have supported them for the last 18 months. 

“So beware of any message claiming an obvious and simple truth.”