Employment and consumption responses to the withdrawal of unemployment benefits

We study the short- and medium-run employment responses to the withdrawals of two programs that expanded the coverage and generosity of unemployment benefits in the U.S. from March to August 2021. That 18 states withdrew unemployment benefits earlier than other states offers a unique policy setting to investigate transitions out of unemployment by race/ethnicity, implications for the quality of job matches, and the persistence of employment effects. Difference-in-differences estimates using panel data from the U.S. Current Population Survey demonstrate that states’ withdrawals of unemployment benefits increased transitions from unemployment to employment, but with large racial heterogeneity: Black and Asian individuals experienced increases in transitions from unemployment into inactivity as a result of the policy change, while White individuals exiting unemployment generally transitioned into employment. Regarding job quality, the benefit withdrawals increased the take-up of lower-pay routine and manual occupations. One year after the policy change, the positive employment effect of the early benefit withdrawal had disappeared, while the negative effects on job quality outcomes persisted.