U.S. about to hit unemployment benefits cliff as August hiring dramatically slows

Millions of Americans will be losing unemployment benefits that have helped keep them afloat for the better part of the coronavirus pandemic. While the unemployment rate ticked down from 5.4% to 5.2% last month, hiring dramatically slowed in August as the Delta variant caused coronavirus cases to soar. The economy added just 235,000 jobs last month, less than half of what economists had anticipated and down from 1.1 million jobs added in July. 

The Biden administration has said ending the federal programs at this time is appropriate, but it also indicated states can use recovery funds to help those who are still struggling with unemployment. To date, no state has elected to do so. 

An estimated 7.5 million workers will lose all of their unemployment benefits, come September 6, according to the Century Foundation. That's the largest drop-off in unemployment benefits in history. It comes as coronavirus cases and hospitalizations are surging due to the Delta variant. 

CBS News reached out to officials in all 50 states to see if they would be extending the enhanced $300 benefits or other programs, such as the ones created for those who don't qualify for traditional unemployment benefits -- like gig workers, self-employed workers or those who've been out of a job for a long time. The vast majority acknowledge states will return to pre-pandemic unemployment benefit levels starting next week. One state official even said for enhanced benefits to continue, they would need to see congressional action.

The unemployment rate is down dramatically from 14.7% in April 2020, though rates for Black workers, 8.8%, and Hispanic workers, 6.4%, were still elevated in August. Rates also vary greatly by state, from 2.3% in Nebraska to 7.7% in Nevada in July. 

"It's vitally important to look at the fact that there are different circumstances in different states," White House Press Secretary Jen Psaki said this week. The Biden administration has said states can use the $350 billion in state and local government relief funds in the American Rescue Plan to extend programs — as outlined in a letter sent by Treasury Secretary Janet Yellen and Labor Secretary Marty Walsh to Congress earlier this month.

While nearly all states have indicated the federal benefits will end, not every state has shut the door to continuing to pay some benefits for people who are still struggling. A Nevada official said the state was still weighing its options. New York has paid out more than $97 billion in unemployment benefits during the pandemic and will continue to review all options to help those in need, an official said.

A California official stated they're reviewing the letter sent from Yellen and Walsh to lawmakers and look forward to any additional legal guidance to states. At the same time, they've been working proactively to connect Californians with other public benefits in preparation for the end of federal benefits. 

Rhode Island has focused on providing resources to jobseekers to help with the return to work, but will "continues to review guidance from the federal government and will consider all available options to help Rhode Islanders get reconnected to the workforce," the director of the Department of Labor and Training said in a statement.

Meanwhile, an official in Washington told CBS News in an email, that to adequately address continued payments for those not traditionally eligible for unemployment assistance, further congressional action would be necessary. He said there are too many unaddressed issues, like a shortage of funds and the high weekly cost of disbursing the benefits, to continue to offer the assistance beyond September 6. The state is now focusing on reemployment efforts and vaccinations moving forward.

For workers in nearly half of the states, enhanced benefits have already ended. Some 26 states announced over the summer they would be ending such benefits prematurely. Legal action forced several to continue making payments through the early September deadline, but for millions, those ended in June and early July. 

The argument made by officials then was that the additional money for unemployed workers was keeping them from returning to jobs, as states saw workforce shortages. However, a recent research paper found states that withdrew from federal unemployment benefits early only saw a modest increase in gains over those that kept enhanced benefits in place. And those gains were substantially smaller than the loss of unemployment benefits, meaning the reduction in benefits didn't spur more people to seek jobs. 

The paper went so far to suggest the decreases in consumer spending with the early end of benefits may have had a harmful impact on employment — with increased layoffs and reduced hiring. 

JPMorgan Chase Institute also noted its research has shown spending drops considerably when unemployment benefits expire. Its researchers said as stimulus and benefits are removed, they've observed cash buffers diminishing more quickly among lower-income families and jobless workers. 

"As policymakers continue to evaluate the best action to ensure a successful and inclusive recovery – targeted income supports continue to be an essential part of buoying consumer spending and household finances and their continuation should be strongly considered," they wrote in analyzing the decision states have to make about ending benefits.