Alaska, Iowa, Mississippi and Missouri this week emerged as a collective test case for whether cutting off federal unemployment benefits will help push people back into the job market or contribute to a slowdown in the economic recovery.
Governors in 26 states — all Republican except for Louisiana’s John Bel Edwards (D) — have vowed to cut off $300 in additional federal weekly unemployment benefits that were extended through September as part of President Biden’s $1.9 trillion COVID-19 relief package in March.
Now, four of those states have followed through on their pledges. The extra cash from D.C., the governors argue, is making jobless benefits more attractive than returning to work. Those arguments have been bolstered in part by nationwide employment reports that have come in lower than expected for two consecutive months.
“We are hearing too many stories from business owners that their own initiatives are not enough to entice former employees back to work because benefits from the federal government pay more,” Sen. Mike Crapo (Idaho), the top Republican on the Senate Finance Committee, said in a statement Monday.
The payments are on top of the benefits provided at the state level.
Beau Benton, president of LBA Hospitality, an Alabama-based hotel management company that runs 70 Marriott and Hilton hotels through the Southeast, said that hiring for line workers and lower-level jobs has proved difficult as the economy starts to rebound.
“It has been an adventure,” he told The Hill. “The problem is you’re competing with a similar wage for someone who doesn’t have to work.”
But the first four states taking the plunge — with unemployment rates ranging from 3.8 percent to 6.7 percent — may not get the results they’re expecting, some economists say.
Jed Kolko, chief economist at the jobs website Indeed, said states that have cut off federal benefits haven’t seen a surge in job searches by unemployed workers.
“There has not been an increase in relative search activity in states that are opting out of federal [unemployment insurance] UI benefits,” he said, while acknowledging what he called brief, muted bumps when the states announced the policy and then again about three weeks before the benefits expired.
States offering back-to-work incentives have had similar results, he said, though it could take months for official state-level employment figures to confirm whether there has been any effect.
“Now search activity is below the national trend,” he said of the four states that recently ended their benefits.
Progressives argue that cutting off additional benefits would be misguided.
A May analysis from The Century Foundation’s Andrew Stettner found that some 16 million workers nationally are receiving the benefits, which amount to nearly $98 billion.
Among the four states that ended the additional payments over the weekend, the decision to pull benefits will amount to some $1.8 billion in lost funds that Stettner says would hit the poor and people of color hardest.
Rather than boost the economy, some argue, the cuts could pull the rug out from resurgent consumer demand and leave the hardest hit people without a strong safety net.
“This marks the start of tremendous financial hardship for millions of jobless workers and their families. These workers will have no income to pay their bills,” said Senate Finance Committee Chairman Ron Wyden (D-Ore.), who has championed the extra benefits and called for reforms to the state-run unemployment benefit system.
“A complete overhaul of unemployment insurance that prevents Republican governors from shredding the safety net whenever it’s in their political interest is critical here,” he said.
Heidi Shierholz, a former Labor Department chief economist who now works at the left-leaning Economic Policy Institute, argued that the seemingly slow rebound of the labor market might not be as dire as it seems.
“That’s not always a bad thing,” she said of the pace of job gains.
If the extra benefits allow people to find a more suitable job, or wait for a higher offer, she said, the economy may end up on more productive footing than a situation in which desperate people take anything that’s available to them, regardless of wage or difficulty.
“If the benefits make it possible for people not to have to take a terrible job, that’s efficiency enhancing,” Shierholz added.
Although the April and May jobs reports fell short of expectations, she noted, they also showed the economy steadily adding about a half-million jobs a month, rising wages and a concentration of growth in the low-wage leisure sector that should be most affected by high unemployment benefits.
“Strong job growth and higher wages? That’s the kind of recovery we want to see,” Shierholz said.
While the rate of job gains implies that the labor market will not completely recover for more than a year, that would still far outpace the anemic aftermath of the Great Recession and the austerity policies that followed.
Beyond that, economists seem to generally agree the economy is in an unusual place, and the recovery may not happen in a textbook way.
Some people are still concerned about COVID-19, and child care remains a difficult problem for many would-be workers, particularly women.
Benton said his company has added an average of $2 an hour to wages, and offered signing, referral and retention bonuses that could add up to nearly $1,000 over the course of a year.
Those incentives have proven somewhat helpful, but hiring remains tough, even as federal benefits are set to expire this weekend in Alabama, and next weekend in Florida, where many of the hotels are based.
“We really have not seen a meaningful uptick,” Benton said.