A new Fed study blows a hole in the GOP argument that unemployment benefits caused the labor shortage

• A new Fed study challenges a key GOP argument on the ongoing labor shortage.
• The analysis indicated that ending federal unemployment benefits had little impact on job-seeking.

A new study from the Federal Reserve published Monday tore a hole in one of the GOP's main arguments about the ongoing labor shortage.

Under President Joe Biden's stimulus law enacted in March 2021, laid-off Americans received an additional $300 a week, gig-workers were made newly eligible for checks, and the number of weeks Americans could receive unemployment was extended.

Republicans often cite the program as a reason that Americans held off from seeking jobs. But the analysis from the Federal Reserve Bank of San Francisco found little difference in job-seeking between states that ended their expanded unemployment programs early and those that kept them in place until their scheduled expiration in September.

"We find small differences in employer hiring activity between these two groups of states, consistent with other recent assessments of the impact of the pandemic UI expansions," the study said.

In April 2021, the Bureau of Labor Statistics released their monthly hiring data. The number came in much lower than expected; economists surveyed by Bloomberg forecast that 1 million jobs would be added. Instead, the country ultimately added just 269,000 payrolls. A record number of people began to quit their jobs — kicking off a trend that's still going strong.

GOP governors quickly pointed to a culprit for slow hiring and suddenly-omnipresent labor shortages: Enhanced unemployment benefits. Republican governors in 25 states — and the Democratic governor of Louisiana — opted out of those benefits early, cutting millions of workers off prematurely.

"My decision is based on a fundamental conservative principle – we do not want people on unemployment," Brad Little, the Republican governor of Idaho, said in a press release announcing the end of benefits. "We want people working. A strong economy cannot exist without workers returning to a job."

Biden expressed support for allowing the expiration of enhanced unemployment insurance. Other key Democrats like Sen. Joe Manchin of West Virginia were opposed to any effort at renewing them.

Research showed that ending benefits early had little to no effect on employment. JPMorgan said cutting benefits was "tied to politics, not economics" last May as GOP-led states began pulling the plug.

If anything, it dealt a blow to states' economies, with spending dropping in the states that opted out. It also upended the finances (and lives) of workers who were suddenly thrown off benefits in the still-recovering labor market.

Benefits ultimately expired for all laid-off workers in September 2021, with the left-leaning Century Foundation estimating that 7.5 million workers would be cut off.