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Economy

Study Finds Early Unemployment Cuts May Have Hurt Consumer Spending

A help wanted sign
Nam Y. Huh
/
AP
A help wanted sign is displayed at a gas station in Mount Prospect, Ill., Tuesday, July 27, 2021.

A new study finds states like Idaho that ended pandemic unemployment benefits early didn't make as many economic gains as some hoped.

In June, 22 states, including Idaho, halted an extra $300 per week in federal payments to those on unemployment. Many also dropped unemployment extensions for the self-employed and those who exhausted their normal state benefits.

Gov. Brad Little said it was necessary to push people back into the workforce as companies were hurting for employees.

“We want people working,” Little said in a press release announcing his decision in May. “A strong economy cannot exist without workers returning to a job.”

But researchers suggest the move didn’t seem to have that intended effect.

“It didn’t hyper-charge the economies in any super intense way,” said Kyle Coombs, a PhD candidate at Columbia University who worked on the study.

The team analyzed banking data from Earnin, a company that offers customers advances on their paychecks. The data included about 18,000 people from 19 states that cut federal unemployment benefits early and compared them to 23 states that kept them in place.

Coombs found a 4.4% uptick in employment for states that cut benefits early compared to those that kept them. These people earned $14 per week more than from unemployment, but they also cut their spending by $145 per week.

“In the short run right now it’s been just a real hit to the balance sheets of these lower-income households,” Coombs said.

The study didn’t have any state-specific data to protect Earnin customer privacy, though he said Idaho was one of the states analyzed.

By many measures, Idaho’s economy has been red-hot despite the pandemic.

Tax collections in Idaho still beat projections last month in every category, and unemployment for July stands at 3.0% compared to 5.4% nationally.

Coombs said the study’s data likely includes more low-income people who use Earnin and may not represent the full workforce. The team will dig in further when benefits for all states run out in September.

Follow James Dawson on Twitter @RadioDawson for more local news.

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