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Hiring Trends as Enhanced Unemployment Insurance Benefits Expire: Evidence from High-Frequency Small Business Data

Luke Pardue Economist, Gusto 

The question of what role enhanced Unemployment Insurance (UI) provisions currently plays in the labor market is important as state and federal policymakers navigate an uncertain economy. Platform data from Gusto — the people platform offering full-service payroll, benefits, compliance, and expert HR services for 100,000+ small businesses nationwide — shows that aggregate employment in service-sector businesses is little different across states opting to end these benefits early compared to those who have not. States that have ended enhanced UI provisions early have seen an increase in employment of adult workers 25 or older, which started the week governors announced enhanced UI would soon end, and has been driven by the states in this group with the highest vaccination rates. In states where enhanced UI will not end until September, there has been a simultaneous spike in hiring of 15-19 year olds. These findings suggest that, while enhanced unemployment support during this pandemic has impacted the composition of the current labor market, it has not slowed down aggregate employment, and health concerns are playing a key role in driving adults’ labor supply decisions rather than UI payments alone.

Key Findings

  • In this report, we compare hiring trends of service-sector small businesses in states that ended enhanced UI benefits June 12, 2021 or June 19, 2021 with states who will maintain these provisions until September 4, 2021. We look at hiring trends of all workers, of adults 25 or older, and of teenagers 15-19 years old—who can serve as a natural comparison group because they likely were not receiving UI payment at the time of this policy change.
  • Overall, employment growth in states that ended UI supplements in mid-June has been on par with those ending benefits in September: cumulative headcount has risen 11.6% since the start of April 2021 in states that have ended these provisions, compared to 11.2% growth in non-ending states.
  • Looking at employment trends by employee age, we observe that around the time of governors announcements in the first week of May, hirings rates for workers 25 and older rose in states ending these benefits early, which indicates that UI did play a role in the labor supply decisions of a group of adult workers. At the same time, hiring rates for teenage workers simultaneously jumped in states not ending these provisions early, indicating that small businesses elsewhere have been able to expand by tapping into an additional supply of labor.
  • Through the end of June, when states actually rolled off UI benefits, there has been no difference in hiring patterns. This pattern can likely be explained by the fact that the workers for whom UI payments were the only factor keeping them out of the labor force did so when these announcements were made, and those still remaining on the sidelines are doing so for other reasons, including concerns for their health or because they are still juggling childcare responsibilities. 
  • In order to better understand the role health concerns are playing in keeping workers out of the labor force, we look within the states ending the unemployment provisions early that have higher and lower vaccination rates. We see that the gains in employment of older workers are driven by the 6 states with the highest share of adults fully vaccinated: Alaska, Iowa, New Hampshire, North Dakota, West Virginia, and Wyoming. Cumulative headcount has risen 11% since the start of April 2021 in those states (where on average 34% of adults were fully vaccinated at the time of these announcements), compared to 3% growth in early states with an average vaccination rate of 27%. This suggests that, even as states end UI enhancements, employment growth is not likely to return until health conditions improve.

Introduction

A string of disappointing employment reports in April and May of 2021 set off a debate among economists, policymakers, and business leaders about the role of the federal government’s COVID-related enhanced Unemployment Insurance (UI) provisions slowing down U.S. economic growth. 

The below-expectation employment growth this past spring led observers to speculate that the additional $300 weekly payments provided to unemployed workers were keeping American workers on the sidelines, making it more difficult for businesses to grow and expand. Indeed, survey data shows these payments are top of mind for business owners and a segment of workers. A recent survey conducted by Gusto and the National Association of Women Business Owners of nearly 1,400 women business owners found that 64% of those looking to hire were having a more difficult time than normal—and 62% of those owners attributed this difficulty to enhanced Unemployment Insurance benefits. A recent survey by Morning Consult found that these payments had an impact on 13% of workers turning down recent employment offers. In response to these concerns, 26 states announced in May that they would be ending these enhanced unemployment benefits early—eliminating the $300 weekly supplement, restricting the pool of eligible recipients, or shortening the duration of extended eligibility. 

As these states have announced and then implemented the restriction of these UI supplements, the impact has been far from clear. Analysts have found that as states have ended these supplements, claims for unemployment benefits in those states have fallen more rapidly. On the other hand, anecdotal evidence suggests this policy change has made little impact on employers’ ability to hire, meaning other factors are playing a larger role in keeping potential workers out of the labor force. 

In this post, we analyze employment trends across these states using Gusto’s platform data of over 100,000 small businesses nationwide. We are able to use high-frequency hiring data to dig below the aggregate statistics and examine how this macroeconomic policy experiment has impacted the labor market. We find that, while employment trends have been quite similar across states that have ended UI early compared to those who have not, there is a notable difference in who is being hired across these two groups of states: in states ending UI supplements early, employment of older workers is substantially higher, while in states where benefits remain in place, owners have significantly increased hiring of 15-19 year olds.     

Weekly Hiring Rates

In this analysis, we compare hiring trends among small businesses on Gusto’s platform in states that were the first to end these unemployment insurance benefits in the middle of June (June 19 and June 26, which we term the “Early States”) and states in which these payments will continue until the federal provisions expire September 4 (“Late States”). We look at small businesses in hard-hit service sector industries—Tourism, Accommodations, Food & Beverage, Arts & Entertainment, Sports & Recreation, Salon & Spa, Retail—because these industries suffered the greatest portion of layoffs at the beginning of the pandemic-induced recession and have been the source of much focus around labor shortages as businesses reopen and seek to expand.

We also look at hiring trends among two specific age groups, workers 25 and older, and teenagers 15-19 years old. Workers aged 25 or older would have generally qualified for traditional or expanded pandemic UI programs, therefore, isolating this group is important to identify the effect of this policy change. On the other hand, teenage workers largely do not receive unemployment insurance. Full-time students (such as teenagers in high school) are not eligible to receive traditional unemployment insurance benefits and, although some may have become eligible for the pandemic-related programs if they met certain restrictions, there was much confusion over eligibility and the application process. Thus, examining hiring trends among teenagers is a useful way to see how a segment of the labor market that is not directly affected by Unemployment Insurance benefits has evolved across these groups of states.  

First, Figure 1 plots weekly hiring rates among workers 25 and older for small businesses in this early group of 12 states (ending UI on June 12 or June 19, 2021) and the late group of states ending UI on September 4, 2021. We see an increase in hiring rates the week of May 10-17, the week that  governors in these early states announced the end of unemployment insurance. Interestingly, in the middle and end of June as these benefits expired June 12 and June 19, hiring patterns in these early states returned to more modest levels and were nearly identical to growth rates in states not ending UI provisions until September. 

Figure 1: Weekly hiring rates among workers 25 and older, by UI Supplement End Date

Figure 2 plots hiring rates among workers 15-19 years old over this same time period. During the first weeks of May, hiring rates for teenagers increased in states that are not ending enhanced UI early, while rates remain lower in states opting out, before both return to comparable levels through June.

Figure 2: Weekly hiring rates among workers 15-19 years old, by UI Supplement End Date

Cumulative Employment Growth

To get a sense of the overall effect of these programs, it is useful to aggregate these weekly hiring rates from April-June into cumulative employment growth since the beginning of April 2021. Looking at cumulative employment since the first week of April, employment in these groups of states has ended in a similar place. Including workers of all ages, employment in states ending these UI programs early has grown 11.6% since April, compared to growth of 11.2% in states ending these programs in September.

Figure 3: Cumulative Headcount Growth by UI End Date, April-June Among Workers of All Ages

However, digging into these overall numbers, employment of older workers has grown more quickly in states that have ended UI provisions early, while employment of teenagers has grown more quickly in states that have maintained these programs. Figure 4 plots cumulative employment growth relative to the beginning of April 2021 among workers 25 or older across these two groups of states. Cumulative employment relative to April 2021 among workers 25 or older is 5% higher in states that have not ended UI supplements early vs 7% higher in states that did end UI early.

Figure 4: Cumulative Headcount Growth by UI End Date, April-June Among Workers 25 or Older

On the other hand, cumulative employment among workers 15-19 years-old is higher in states that did not end the UI supplement early. As shown in Figure 5, in states that did end UI benefits June 12 or June 19, headcount is 32% higher relative to April 2021, while employment of teens in states that will not end UI until September has grown 55%.

Figure 5: Cumulative Headcount Growth by UI End Date, April-June Among Workers 15-19 Years Old

Possible Drivers of These Trends

Finally, we take a look at two distinct but related aspects of these trends: why there was a rise in employment the weeks after state governor’s made these announcements and why there may not have been a larger difference in employment of older workers after UI benefits ended.

First, given the frictions associated with the job search process, it may seem surprising that hiring of older workers rose the week that many governors announced that benefits would end, particularly given that these programs would not in fact end for several more weeks. One potential explanation could be that employees retained relationships with their previous employer and were able to quickly return to these firms. 

Figure 6 plots weekly re-hiring rates of workers 25 or older. This plot is similar to Figure 1, but only counts hires who previously worked at the same firm. Interestingly, we see a similar spike in re-hiring rates in May 2021 among states ending UI early. This pattern suggests that the increase in hiring we see around the announcement dates is driven by a portion of employees who have existing relationships with employers quickly returning to these positions. 

Figure 6: Weekly Re-Hiring Rates by UI End Date, April-June Among Workers 25 or Older

Second, we examine one factor that may be restraining employment growth in these states that have ended UI benefits: health concerns among workers returning to these service-sector jobs. To examine the role of health concerns in driving employment, we look at how employment has evolved within the 12 states in the early group, splitting them up according to those with relatively high and relatively low vaccination rates. The week before these governors’ announcements began, across this group of states had on average 31% of all adults 18 or older fully vaccinated, according to data collected from the CDC and compiled by Oxford University’s COVID Vaccine Tracker. We then divide this group into two groups: the 6 states with vaccination rates above this average (Alaska, Iowa, New Hampshire, North Dakota, West Virginia, and Wyoming had an average vaccination rate of 34%) and the 6 states with vaccination rates below this average (Alabama, Nebraska, Idaho, Indiana, Mississippi, and Missouri had an average of 27% of adults vaccinated in the beginning of May). 

Figure 7 plots cumulative employment growth between these two groups of “early” states (relatively higher and lower-vaccination rates) through the end of June. While employment trends in these two groups were similar before the announcements that they would end UI benefits early, nearly all of the growth after the announcement dates is driven by growth in higher-vaccinated states. This pattern suggests that health concerns among adult workers is indeed playing a substantial role in slowing employment growth, even in states that ended UI benefits early. 

Figure 7: Cumulative Headcount Growth Among States Ending UI Early for Workers 25 or Older, by High/Low Adult Vaccination Rate

The Bottom Line

These findings illustrate the important ways in which different segments of the labor market interact with each other and suggest a nuanced view about the role of Unemployment Insurance in the economy at this time. The week that state governors announced UI benefits would soon end in mid-June 2021, we observe a rise in hiring rates of adult workers 25 or older compared to later states, after which both return to nearly identical levels as these benefits actually expire. On the other hand, hiring rates of teenagers 15-19 rise in states keeping enhanced UI benefits through September, before also returning to comparable levels in June. Together, these two different trends have meant that cumulative employment across these two states has been on par through the end of June 2021. 

Indeed, the growth in hiring of older workers has been driven by re-hiring around the announcement dates, and has also been driven by the states that have the highest adult vaccination rates in this group. Given these patterns, a reasonable interpretation of these findings is that there was a segment of workers for whom it was easy to return to work—and they did so the week governors announced the end of these benefits. But the reason these differences across states are not larger, and do not appear in aggregate statistics, is that it appears more of these adults are hampered by health concerns—and also, likely continued childcare disruptions. In a recent Morning Consult poll, workers were more likely to have said they turned down a job because child care options were not available or because of health concerns than because of UI payments. In the recent Gusto-NAWBO survey, 23% of owners who are experiencing difficulty hiring attributed their trouble to ongoing difficulties finding child care among potential workers. Ending enhanced Unemployment Insurance provisions is likely not the silver bullet to speeding up this economic recovery, and policymakers would be better-served by focusing on achieving higher vaccination rates and ensuring schools and child care centers can re-open in a safe and timely manner—particularly because these enhanced UI provisions are set to end for all states in several weeks.

The federal government introduced these measures as part of a massive and unprecedented economic relief effort during a global pandemic. As the country navigates its next, equally-unprecedented phase—a return to more normal economic times—the findings provided by real-time, detailed economic data can arm policymakers with information needed to design policies that are best suited to help American workers and their families. 

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Updated: September 9, 2021

Luke Pardue
Luke Pardue Luke Pardue is an Economist at Gusto, researching how public policies help small businesses and their workers thrive. He is a PhD Candidate in Economics at the University of Maryland, where he studies the effects of government programs on disadvantaged populations’ housing and labor market outcomes. Luke currently lives in Washington, D.C.
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