Man fills in Unemployment benefits application form.

Long-Term Impacts from Extra Unemployment Benefits

Noah Williams writes for National Review about the impact of COVID-related extra unemployment benefits.

The September jobs report released last week showed that hiring had slowed to a crawl as labor supply continued to hold back the recovery. The economy added just 194,000 jobs in September, with the leisure and hospitality sector — hardest hit by the pandemic and most affected by labor shortages — adding only 74,000 jobs. Both the overall gains and the gains in this sector were less than a quarter of the pace of hiring over the summer.

Since at least the spring of this year, it has been clear that employers are having difficulty finding workers to hire, despite strong demand for labor. Every month from February through July set a new record high for the job-openings rate, which peaked at 7.0 percent in July before falling slightly to 6.4 percent in August, up roughly two percentage points from the already-tight pre-pandemic labor market of late 2019. In the hardest-hit leisure and hospitality sector, job openings reached a remarkable 11.0 percent rate. At the same time, overall unemployment had fallen only slightly over the previous few months, and the rate of hiring had slowed. In the most recent data through August, there were 1.25 job openings for every unemployed worker.

There was hope that the lessening of supply-side restraints in September would give a boost to labor markets. The expectation was that the expiration of the enhanced federal unemployment-insurance programs would bring more people back into the workforce, while the return to in-person schooling would reduce an obstacle for some parents returning to work. But hiring difficulties seem to have continued now into the fall, raising the possibility that a return to pre-pandemic levels of employment may be more difficult than policy-makers have envisioned.

The changes in the labor market over the course of the pandemic raise the specter of “hysteresis,” where short-term economic shocks have long-term impacts, even after the shock subsides.

Mitch Kokai / Senior Political Analyst

Mitch Kokai is senior political analyst for the John Locke Foundation. He joined JLF in December 2005 as director of communications. That followed more than four years as chie...