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March 11, 2021

Higher unemployment benefits did not hinder US job creation during Covid – leading macroeconomic influencers

Some economists believe that the US federal unemployment benefits caused a decline in job applications even when jobs were unusually scarce during the Covid crisis.

Some economists believe that the US federal unemployment benefits decreased competition among job seekers when jobs were unusually scarce during the Covid crisis. However, the benefits did not decrease employment or job creation.

Tim Duy

Professor Tim Duy, an academic expert in the US macroeconomy, retweeted a tweet by University of Pennsylvania professor, Ioana Marinescu, on new higher unemployment benefits not hindering the US labour market recovery at the start of the Covid-19 pandemic.

While the benefits did appear to cause a decline in job applications, they did not affect job search and vacancy creation. On the contrary, applications per job were found to be higher.

The Federal Pandemic Unemployment Compensation (FPUC) increased US unemployment insurance benefits by $600 per week, when the Covid-19 hit the country. According to theory, the FPUC could cause a drop in job applications, and also decrease vacancy creation.

However, based on a week by week evaluation of job applications and vacancy creation between March and July 2020, researchers found that trends in outcomes prior to the FPUC did not correlate with future increases in benefits.

Instead, they found that a 10% increase in unemployment benefits led to a 3.6% decline in applications but did not decrease vacancy creation. Therefore, the FPUC increased tightness with respect to the ratio of vacancies over total applications. Secondly, the study found that the tightness was unusually low during the FPUC period. Altogether, researchers concluded that the positive effect of unemployment compensation on tightness was welfare improving.

Joshua Goodman

Joshua Goodman, an associate professor of education and economics at the Boston University, retweeted an article by Matt Barnum on the US Congress having approved a massive infusion of funds for schools and high-poverty districts, included as part of the pandemic relief package that includes $128bn for K-12 education and billions for state governments.

This is expected to lead to a dramatic reversal in fortune with some school districts going from fearing budget cuts to being cash rich.

The funds, which is part of the American Rescue Plan for Covid recovery, is expected to become a law this week. Experts had earlier predicted that the Covid-induced economic dip would threaten US’s disadvantaged schools the most. However, the new money amounts to approximately $2,500 per student across the nation, although high-poverty districts will see more.

Cleveland’s school district, for instance, where a majority of students come from low-income households, will be allocated approximately $8,000 per student, on top of the $4,500 per student it has already received as part of the pandemic relief.

The education funds are being seen as the biggest single federal plan for K-12 education in US history and is expected to be used by October 2023. Districts have been advised on using at least 20% of the money to fix learning loss, while the rest can be used for anything related to Covid safety kits such as masks, retaining teachers, and building after-school programmes.

https://twitter.com/JoshuaSGoodman/status/1369731450845749249

Gregory Daco

Gregory Daco, an economist, shared an article on US’s third Covid-19 stimulus package leading to massive economic growth and reviving inflation in 2021.

Economists have predicted a 5.95% gross domestic growth (GDP) growth, the fastest in nearly 40 years. Meanwhile, inflation is expected to reach levels rarely experienced in the past ten years, at close to 3% in mid-2021, with uncontrolled overheating unlikely.

Analysts have also predicted employers to add an average 514,000 jobs a month over the next four quarters. Some economists warn that they may have underestimated the bounce, as the Covid-19 relief bill is set to ignite faster growth than expected.

The success of the coronavirus aid, experts state, is already evident from the roughly $4tn expenditure that Congress authorised last year to beat the virus through easy money policies and reopen businesses and schools as the population got vaccinated.

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