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Study: Unemployment cuts by states saved little money

States that slashed unemployment benefits during the recession enjoyed little in the way of savings and failed to encourage job seekers to find work more quickly, according to a recent study.

The study, released last week by the Economic Policy Institute (EPI), a left-leaning economic think tank, found that six of the eight states that cut the duration of unemployed workers’ benefits reaped minimal savings that were intended to restock coffers depleted by the recession-induced rise in unemployment. The study says those states saved only nine cents per week for each employed worker in the state. Meanwhile, unemployed workers lost on average $252 for each week of benefits.

The states in question were Arkansas, Florida, Georgia, Michigan, Missouri and South Carolina. Illinois and North Carolina also reduced unemployment benefits, but their data was not included in the study’s report on fiscal savings due to the timing of their cuts.

Before the recession, those states offered 26 weeks of unemployment benefits. But as the economy nose-dived and state budgets suffered, they cut benefits to anywhere from 12 to 25 weeks.

“The key to prevent unemployment trust funds from becoming insolvent is to raise more revenue in good times to be able to spend it in bad times,” Joshua Smith, an economic analyst and one of the study’s authors, said in a statement. “The wave of insolvency in state unemployment insurance accounts in the aftermath of the Great Recession was the result of policymakers’ failure to follow that simple rule.”

What’s more, none of the eight states that cut benefits experienced a significant boost in employment as a result of those cuts. The EPI study shows little or no improvement to employment numbers for what it calls the “prime-age working population (age 25 to 54)” in the states in question once the cuts were instituted.

“There’s no evidence of any benefit to reducing the length or dollar amount of unemployment insurance when the economy is so weak,” said Josh Bivens, EPI’s director of research and policy. “It’s hard to understand why states would shoot themselves in the foot like this.”