A recent study published by the National Bureau of Economic Research has found that cutting the federal supplements to state unemployment insurance payments sharply reduces spending, which is bad news for the businesses they would have otherwise patronized.

The study used two sets of data: one is the administrative records on 1.26 million individuals that provide universal and weekly information on their claims, benefits, and previous earnings, which allowd for calculations of individual-level replacement rates and unemployment rates that can be aggregated to any level of geography and industry. The second is transaction-level data on credit and debit card purchases that are available on a daily basis at the county level.

The researchers found that, in general, when you give unemployed people money, they will spend it, and if you take that money away, they won't. Specifically, the paper says cutting the supplement from $600 to $400 would serve to reduce local spending by 12 percent; cutting it to $200 would reduce local spending by 28 percent; and getting rid of the supplement entirely would reduce local spending by 44 percent.

In general, when someone spends money on a business, it is good for that business. Therefore, if people don't have as much money to spend, then businesses will pull in less profit, which in turn can affect hiring patterns and capital investment because, ultimately, the U.S. is consumer economy. The researchers said that their results indicate that the unemployment supplement was having a stimulative effect on the U.S. economy, serving to mitigate at least some of the economic damage done by the pandemic.

It calls to mind the origins of food stamps not as a social program but a business aid supplement. While today we think of food stamps (and its successor programs) in terms of consumers, during the Great Depression the focus was on producers. Basically, farmers had a lot of food, but no one had any money to buy what they had, which led to a glut that utterly demolished food prices. The government first told farmers to simply slaughter excess livestock and plow over their fields, but the image of destroying food when so many were hungry sparked anger. So then the government decided to help farmers by buying food directly and distributing it to hungry people, but then grocers got upset at being forced to compete with free. So, finally, food stamps were developed as a way to addres the needs of farmers, shoppers and retailers at the same time: the government would give people the money to buy food, which helped retailers and farmers make a profit. 

Without this program, it is likely that both farmers and retailers would have had an even more difficult time in the Great Depression as no one would be able to afford what they were selling. In this same respect, then, it is not surprising that unemployment benefits would be similarly beneficial to local businesses, as it allowed spending to continue, which meant more income for local business.