Pandemic Labor Market Flows: A Difference-In-Differences Study on State-Level Withdrawal from Unemployment Insurance

In June and July of 2021, 26 states terminated COVID-19-related unemployment insurance (UI). These states aimed to incentivize people to find employment quickly by cutting off federal emergency unemployment insurance. I have devised a difference-in-differences study to model the change in labor market flows and employment in states that kept their agreement to pay federal emergency unemployment insurance contrasted with those that terminated their agreements to pay federal emergency unemployment insurance. The policy of interest is the reinstatement of Federal Pandemic Unemployment Compensation Program (FPUC), which offered $300 weekly (instead of the original amount of $600) to claimants. By using a multinomial logit model, I am able to assess nine different employment flows and determine which flows significantly changed as a result of the policy reform. The results from this paper will be useful in determining the efficacy of this policy change by examining if the policy achieved its purpose in getting people back to work. I find that the probability of finding a job rises at the expense of remaining unemployed and at the expense of leaving the labor force due to the policy change. The policy reform was indeed successful at accomplishing its task of incentivizing people to find employment. Economic theory predicts that removing unemployment insurance benefits will shorten the duration of unemployment spells and incentivize unemployed individuals to find jobs. The analysis conducted in this paper mirrors this theory. This paper also analyzes all employment statuses and labor market flows as opposed to focusing solely on individuals in the labor force; this allows for more in-depth analysis as well as insights on the full scope of the impact of this policy reform.Bachelor of Scienc