We study the role of local labor market shocks and unemployment insurance (UI) benefits in determining students’ exposure to exclusionary discipline practices in U.S. public schools. By leveraging data on both school-level disciplinary incidence and local, firm-level layoffs across 23 states, we find that—absent UI benefits—a one standard deviation increase in annual city-level layoff exposure increases a school's rate of out-of-school suspensions by 7.9%. However, these effects are largely mitigated by sufficiently generous UI benefits. Specifically, our estimates imply that between $480 and $600 in maximum UI benefits will offset the average increases in out-of-school suspensions that are caused by city-level and school district-level layoffs, respectively. These effects are driven by large impacts on Black and male students, and we further document that layoff shocks can increase the Black-white gap in out-of-school suspensions when UI benefit levels are low.