We examine the impact of local labor market shocks and state unemployment insurance (UI) policies on student discipline in U.S. public schools. Analyzing school-level discipline data and firm-level layoffs in 23 states, we find that layoffs have little effect on discipline rates on average. However, effects differ across the UI benefit distribution. At the lowest benefit level ($265/week), a mass layoff increases out-of-school suspensions by 5.1%, with effects dissipating as UI benefits increase. Effects are consistently largest for Black students -- especially in predominantly White schools -- resulting in increased racial disproportionality in school discipline following layoffs in low-UI states.