The Impact of Unemployment Insurance Benefit Cuts on Mental Health: Evidence From Early Pandemic Program Expirations

This study is the first to estimate the effects of unemployment insurance (UI) benefit contractions on mental health. We leverage a unique quasi‐natural experiment: early termination of the Federal Pandemic Unemployment Compensation (FPUC) and Pandemic Unemployment Assistance (PUA) programs across more than 20 states during the summer of 2021. Using high‐frequency data from the Census Bureau's Household Pulse Survey (HPS), our difference‐in‐differences estimates suggest that early withdrawal from FPUC and PUA increases the probability of reporting anxiety symptoms among working‐age adults without a college degree, a group particularly vulnerable to unexpected income shocks. The adverse effects are more pronounced among racial and ethnic minorities, older individuals, and women. However, the increase in anxiety symptoms is short‐lived, persisting for about 1 month after the benefit cessation. Finally, we find evidence that financial hardship is a likely mechanism underlying these findings.