Pandemic aid was a lifesaver for jobless
Little evidence extra cash is keeping most recipients from returning to work
By Jim Puzzanghera, Globe Staff

WASHINGTON — When the pandemic hit, Erica Diaz, a 39-year-old medical social worker from Stoughton, Mass., tried to stay on the job as long as possible while juggling child care for her two young children.

She made it about four months.

First, her kids’ day care closed. An extra $5 an hour in hazard pay helped her afford a nanny, but when that money dried up in July, she was out of options. So, she decided to leave her job and file for unemployment benefits to stay home with her 1-year-old son and 7-year-old daughter.

“It kept food on my table. It kept the lights on,’’ Diaz said of the weekly check that, even with a pandemic increase, fell far short of her usual earnings. “It literally put diapers on my son.’’

Faced with record job losses because of COVID-19 shutdowns, Congress authorized an unprecedented expansion of unemployment benefits last year to meet the moment. Lawmakers dramatically broadened who was eligible to receive the payments and added hundreds of dollars in extra income to the checks each week.

That extra money, which is set to expire in early September, provided a financial lifeline for tens of millions of Americans during a once-in-a-century pandemic. But it also fueled a fierce backlash from employers and some politicians, whose voices have largely dominated the debate around the benefits.

Republicans in Congress said the generous benefits allowed some low-wage workers to earn more on unemployment than from a paycheck, discouraging them from work. After business owners complained of difficulty hiring as the economy reopened this spring, governors in 26 states — all but one of them Republican — announced they would cut off the extra benefits before they expire to force more people back into the workforce.

“Incentives matter, and the vast expansion of federal unemployment benefits is now doing more harm than good,’’ said Montana Governor Greg Gianforte, a Republican, who in May was the first to make the announcement.

A majority of Americans support the governors’ decisions, according to a Quinnipiac University poll from May, suggesting the narrative that the benefits kept people out of work has prevailed with the public and raising questions about whether Congress would take this type of generous step in future emergencies.

But research shows that enhanced unemployment benefits do not appear to have significantly held back hiring in a job market complicated by continued fears of the virus and the need to care for children until schools are fully reopened. And economists largely view the program as a success that allowed Americans to continue spending money through uncertain times, helping keep the economy afloat.

“It is way too simplistic to say that unemployment benefits ... are restraining the labor market recovery. That would simply not be true,’’ said Gregory Daco, chief US economist at Oxford Economics, a global forecasting and analysis firm. “The policy decision to cut off benefits is one that so far has been mostly political. There’s been very little analysis in terms of the net trade-off.’’

Oxford found that the $600 weekly boost to unemployment in effect for four months last year brought checks above the median pay for workers in several fields, including teaching, construction, retail, and food service. When the extra money fell to $300 last year, the benefits outpaced the median pay of fewer occupations.

But Daco and other economists said the decision to go back to work is much more complex than just a simple calculation of whether the temporary benefits pay more than one’s salary.

“People aren’t comparing weekly income to weekly [unemployment] benefits,’’ said Nicolas Petrosky-Nadeau, vice president for macroeconomic research at the Federal Reserve Bank of San Francisco. “They’re comparing a long-lasting job with a continuous stream of weekly income to a short-duration additional [unemployment] payment. At the same time, finding a job isn’t easy, so it’s also risky to turn down a job offer.’’

There’s also a broader economic benefit of enhanced unemployment payouts.

“Dollar for dollar, giving money to people without a job is surely one of the best ways to stimulate the economy,’’ said Arindrajit Dube, an economist at the University of Massachusetts Amherst.

Diaz, who returned to work in March, is just one of many workers who said the enhanced unemployment benefits were crucial to them making it through a pandemic that upended their lives. Some used the benefits to avoid exposure to the virus from in-person jobs, while others trained for new professions, cared for family members, or stayed home to help children with online schooling.

Tyrone White, 45, of Brockton, who worked in customer service for a financial firm, said he turned to unemployment last summer when his employer told him he had to return to work in the office full time. He refused because two of his children, at 11 years old and 7 years old, were at higher risk if they contracted COVID because of severe asthma and allergies. He worried about spreading the virus to them and also needed to stay home because they could not attend in-person school.

“I’d rather be at work than sitting home collecting unemployment,“ White said. The extra $300 means he’s receiving more money on unemployment than he took home when he was working. Without the boost, he said, his finances “would have been tight.’’ Now he’s waiting for vaccines to be approved for children younger than 12 years old so his kids can go to in-person school and he can return to work.

Other workers decided to use the financial cushion of the benefits to upgrade their skills and find higher-paying jobs. That doesn’t help employers who need workers now, but overall it’s a trend that improves the nation’s productivity, according to experts.

“It may be that [unemployment] enables people to look a little bit longer and try to find a better job, and in the long run that will be better for the economy,’’ Federal Reserve Chairman Jerome Powell told lawmakers at a House hearing on Wednesday.

Thomas Conte, 37, of Pittsburgh, is one of them. After he was furloughed in March 2020 from his job as a prep cook, unemployment allowed him to take online classes in information technology.

“I had an epiphany: When am I ever going to have this much time to maybe better my career and better myself?’’ Conte said. Three months ago, he landed a higher-paying job as an operational support coordinator for a law firm that does debt collection.

“I went from cooking food to sitting in front of a computer, a pretty big change, and I’m pretty happy with it,’’ Conte said. An added plus: He can work from his apartment, where his two dogs keep him company.

Powell and Biden administration officials have dismissed suggestions that enhanced unemployment has been a major drag on hiring. At Wednesday’s hearing, Republicans pressed Powell on that point, citing a Morning Consult poll that showed 13 percent of unemployed Americans said they had not returned to work yet because of the benefits. A similar share of unemployed Americans — 14 percent — cited child care obligations as their reason for staying out of the workforce, while 13 percent blamed health restrictions.

Another study backs up the notion that a small portion of those on unemployment insurance are not looking for work due to the benefits. Petrosky-Nadeau and his colleague Robert G. Valletta at the San Francisco Fed determined that about 14 percent of people in early 2021 declined a job they normally would have accepted because of the extra $300 a week in unemployment benefits.

The impact was “noticeable, but relatively small,’’ and concentrated in low-wage sectors, Petrosky-Nadeau said.

“There wasn’t a single state where the typical worker would be dis-incentivized to look for work,’’ he said.

That hasn’t stopped governors in more than half the states from announcing they would end the benefits early.

Unemployment insurance is a joint federal-state program begun during the Great Depression. Most states provide up to 26 weeks of benefits that partially replace regular earnings, funded from taxes paid by employers. (Massachusetts allows up to 30 weeks.) During past economic downturns, Congress has funded a temporary extension of those time limits. But it’s up to states to accept them.

As many as 46.2 million people — about 1 in 4 workers — received at least one week of unemployment benefits during the pandemic, according to a March study by the Century Foundation, a progressive think tank. About 13.8 million people were receiving some sort of unemployment assistance as of the last week of June, according to the Labor Department.

If unemployment benefits were significantly holding back hiring, economists expected job searches would jump in states pulling out of the program. That hasn’t happened, according to the online employment site Indeed.

“There’s no clear sign that the announcements or the actual taking away of benefits led to some noticeable and persistent surge in job search activity,’’ said Nick Bunker, the site’s economic research director for North America.

Indeed measured activity on its site last month and found that searches increased compared with April in half the states that had ended or announced plans to end the enhanced benefits, while search activity was down in the other half.

“Some people, even with the hit to their income of the money being taken away, are willing to wait a little longer because of their concern about the virus,’’ Bunker said. “It’s going to take multiple problems being solved before we see a sustained uptick in job seeker interest.’’

But Aneta Markowska, chief financial economist at investment banking firm Jefferies, found that in states where the $300 benefit already has expired, more people jumped back into the job market. She looked at weekly state unemployment claims and found they declined by an average of 5.2 percent the first week after the enhanced payments expired, 13.7 percent the second week, and 10.8 percent the third week.

“It looks as if people really waited until those benefits were completely over and done with before going back to work. That certainly gives some validity to the idea that these benefits did constrain hiring to some extent,’’ she said. “I certainly wouldn’t suggest this is the dominant factor or the only factor. I actually think the dominant factor is caregiving and some health risks.’’

For Diaz, the $300 federal boost that began in late December allowed her to survive a child care crisis that has helped drive millions of women out of the workforce. She was able to go back to work in March when her sister moved in to watch the children, but she said she still owes about $18,000 in back rent for her two-bedroom apartment from her time out of work.

“People talk about it like people leeching off the system. It’s not like that,’’ Diaz said of the enhanced unemployment. “Nobody’s getting rich on the $300.’’

Jim Puzzanghera can be reached at Follow him on Twitter: @JimPuzzanghera.