New research from the Texas Public Policy Foundation reveals that states that extended supplemental unemployment insurance benefits created a financial incentive for people to stay home instead of returning to work. Roughly 3 million more people stayed on unemployment in states that maintained the increase in benefits versus the states that ended the program early, according to the TPPF study “Paid Not to Work.”  Conversely, states that ended the extra payments saw their employment numbers increase by over 2 million.

“The takeaway is not just that some states improved their employment numbers and some didn’t,” said the study’s author E.J. Antoni, “It’s that extending unemployment benefits had a significant negative impact on the ability of communities to recover from the pandemic. Lives and livelihoods were put on hold for a much longer period than was necessary as a result of this wrong-headed policy.”

The policy deeply affected the incentives of low-income individuals to return to work, but had an impact across the entire economy.

“Coupled with the preferential tax treatment and expanded eligibility, the $600 weekly supplemental benefit created a considerable disincentive for many people to return to work or even to continue working an existing job,” Antoni writes. “In some cases, total unemployment insurance benefits were a multiple of previous take-home pay. Even at higher incomes, the supplemental benefits, in conjunction with other government programs and payments, provided the equivalent of a $100,000 annual income for a family of four in 19 states and the District of Columbia.”

Trapping individuals in a cycle of dependence, particularly among millions of workers who would have never sought unemployment benefits were it not for the government-imposed lockdowns, is a destructive policy which “should likely never be implemented again,” Antoni concludes.

Key Points

  • The supplemental unemployment insurance benefits disincentivized working and exacerbated unemployment.
  • Many people received more on unemployment than they did while working.
  • The supplemental benefits’ effects were seen at both the national and state levels. Those states that terminated the program early converged to pre-pandemic employment levels substantially faster.

Read the full publication here.