3 reasons it's 'too soon' to cut off expanded unemployment, according to Brookings

• It's "too soon" for the US to cut boosted unemployment benefits, the Brookings Institute said Wednesday.
• The aid is set to lapse for 7.5 million Americans early next month, and Congress is unlikely to extend it.
• The think tank says letting it expire would widen inequality and slow the recovery without fixing the safety net.

Letting federal unemployment benefits expire in September will do far more harm to the US than good, the Brookings Institute said Wednesday.

Critical support for some 7.5 million unemployed Americans currently hangs in the balance, according to estimates from the left-leaning Century Foundation. A handful of federal programs that boost unemployment insurance are set to expire on September 6, cutting off aid that's been in place since the CARES Act was approved in March 2020.

President Joe Biden has already punted the issue to Congress, and lawmakers are unlikely to renew the programs over the next two weeks. Rep. Alexandria Ocasio-Cortez told Insider's Joseph Zeballos-Roig this week that progressives are "looking into" an extension, but she said it won't happen before Labor Day and the Senate and White House seem reluctant to extend.

Letting it lapse is a mistake, and its consequences will ripple throughout the economy, Annelies Goger, a fellow at Brookings' Metropolitan Policy Program, wrote. It's "too soon" for the federal programs to lapse, and arguments in support of a September expiration are short-sighted, she added.

She laid out three reasons why, in her words, it's just too soon to end it.

1. It just isn't the reason for the labor shortage

Geiger dismissed the criticism that the UI boost exacerbated the nationwide labor shortage.

There is simply "little evidence that higher pandemic UI benefits have been a major source of employers' problems in finding workers, or that those difficulties are widespread," she wrote. Likewise, she said little evidence supports the argument that cutting it early increased employment.

Conservative lawmakers have railed against the aid for months, saying it disincentivized Americans from taking jobs and fueled lackluster hiring in the spring. The argument also led 26 states - all but one led by Republican governors - to prematurely cut the federal supplement.

The move was marketed as a way to push Americans into the workforce, but recent data suggests it had negative effects. Researchers found the cutoff led to a 20% drop in individuals' spending, and total spending dropped by $2 billion in states ending the benefit early. At the same time, just 4.4% more workers in early-out states had jobs compared to peers in states keeping the boost intact.

2. The safety net isn't fixed yet

Letting the benefit expire in September would also leave several problems with the UI program unfixed, according to Goger. Each state runs its own UI system, leaving the safety net "riddled with inequities, cumbersome processes, and outdated technologies."

For one, several kinds of workers were left out from traditional UI. Domestic and agricultural workers weren't able to benefit, and gig workers have only been included as a pandemic-era exception. The programs also exclude people who just started paid employment, reduced their work hours, or faced disruptions that cut into their ability to work, Goger said.

Differences between states' programs also harm workers, hurting racial minorities and the long-term unemployed the most. The country's poorest are frequently trapped in joblessness without adequate support, Goger said.

Reverting to pre-pandemic UI systems next month would doom the programs to suffer the same problems they've had for decades, Goger said, while replacing the state programs with a single federal system could allow for more equitable and efficient unemployment insurance.

(3) It will make inequality worse and hurt the economy

Doing nothing on UI would also worsen inequities throughout the economy, she added.

The benefit helped some of the hardest-hit Americans stay afloat, but most are still far from fully recovered. The labor shortage suggests swaths of workers are changing careers, and removing the UI safety net amid that shakeup could throw millions into economic disarray. Keeping the program intact would ensure those transitions can safely take place, especially when the Delta wave is slowing the pace of recovery, Goger said.

She wrote that the "broader ecosystems of safety net programs, services, data, and prevention strategies are critical infrastructure for a well-functioning, more inclusive economy," and that ought to be the point of unemployment insurance. The job is unfinished.