$300/Week Unemployment Benefit Dropping Like Flies in Red States

Today I want to talk about some of the recent news with respect to pandemic unemployment. As many of you know the American Rescue Plan which was passed in March provided supplemental payments of $300 per week to people who received benefits through their state unemployment programs, and that funding was intended to last through Labor Day, so as long as you maintained eligibility you would be able to continue getting those checks until September 6th.

Now the way that works is that each state government still handles its own unemployment system, the federal government isn’t really involved in that process, but the federal government sends them that money to cover extra payments for everyone who’s receiving unemployment through the state program. 

Of course the controversy with these benefits has been the idea that they’re artificially reducing the supply of labor by making it easier to avoid working. For example if you live in South Carolina, let’s say you had a minimum wage job before the pandemic, well minimum wage in South Carolina is $7.25 per hour. That means that if you work 40 hours a week, 9-5 Monday through Friday, then at the end of the week you’ll have made $290 gross, top-line, before deductions. So the federal supplemental unemployment benefit is actually greater on its own than a full-time wage in South Carolina and other states that don’t have any state minimum wage laws and plus if you’re not working you can avoid costs like commuting and childcare.

Obviously there’s an argument that this is really the fault of those states more than anything else, $290 a week is an extraordinarily low income to live on almost anywhere in the US, personally I don’t blame anyone for taking advantage of these benefits while they’ve been available, and if an employer is only offering $290 a week, seven dollars and twenty-five cents an hour, then it’s hard for me to feel very sympathetic when they have trouble finding people who want to work for them.

There are also many people in a variety of situations that make it difficult to work, I mentioned childcare which can be extremely expensive, and some industries are still mostly shut down which prevents people from coming back to the jobs they had before the pandemic.  On the other hand the South Carolina state government has a different perspective on this, they’re one of eight states so far that are actually opting out of the federal program, in other words they’re cutting their own citizens off from benefits that are coming from the federal government.

According to the South Carolina governor’s letter to the state’s Department of Employment and Workforce, here’s what he said, “This labor shortage is being created in large part by the supplemental unemployment payments that the federal government provides claimants on top of their state unemployment benefits. In many instances, these payments are greater than the worker’s previous pay checks. What was intended to be short-term financial assistance for the vulnerable and displaced during the height of the pandemic has turned into a dangerous federal entitlement, incentivizing and paying workers to stay at home rather than encouraging them to return to the workplace.” So South Carolina will be ending those benefits on June 30th. Montana is fully opting out starting on June 27th, their governor put out a similar statement, he said “Montana is open for business again, but I hear from too many employers throughout our state who can’t find workers. Nearly every sector in our economy faces a labor shortage. Incentives matter, and the vast expansion of federal unemployment benefits is now doing more harm than good. We need to incentivize Montanans to reenter the workforce. Our return-to-work bonus and the return to pre-pandemic unemployment programs will help get more Montanans back to work.”

And Montana is actually diverting those unemployment funds to a new program which will give formerly unemployed workers a one-time $1,200 bonus when they come back to work and stay in their new position for at least four weeks.

Arkansas was the third state to announce a similar plan, their payouts will end on June 26th, unsurprisingly there was a similar statement that said “These temporary benefit programs were created to provide relief for those who are not traditionally covered by the existing state unemployment insurance program (such as self-employed and 1099 workers) who lost income or were unable to work as a direct result of the pandemic. During the time when businesses were shut down and there was no vaccine to protect Arkansans from the virus, these programs served a good purpose. Now, vaccine eligibility is open to all Arkansans over the age of 16 and Arkansas is back in business.”

There are other states on this list as well, all red states as you can imagine, so just to sum up, here’s a chart of the eight states that so far have said they will opt out of the federally-funded unemployment early, they are Iowa, Mississippi, Alabama, North Dakota, Arkansas, Montana, South Carolina, and Tennessee. Who’s next? Any guesses? Guaranteed other states, red states are going to follow suit here.

So these states are taking the hardest line on this issue by totally withdrawing from federal unemployment, but there are also less extreme changes taking place in other states as well as at the federal level. President Biden touched on these issues while speaking to the press on May 10th, he said “We’re going to make it clear that anyone collecting unemployment who is offered a suitable job must take the job or lose their unemployment benefits. There are a few COVID-19-related exceptions so that people aren’t forced to choose between their basic safety and a paycheck, but, otherwise, that’s the law.”

He went on to qualify that statement, he continued, “I know there’s been a lot of discussion since Friday’s [jobs] report that people are being paid to stay home rather than go to work. Well, we don’t see much evidence of that….It’s easy to say, the line has been, because of the generous unemployment benefits, that it’s a major factor in labor shortages….We still have 8 million fewer jobs than we did when the pandemic started….No one should be allowed to game the system and we’ll insist the law is followed, but let’s not take our eye off the ball. Families who are just trying to put food on the table, keep a roof over their head, they aren’t the problem.”

So the administration has been gently pushing back on this idea that there’s some problem with providing too much in unemployment benefits, but at the same time they’re starting the transition back to the usual conditions for unemployment payments, including the stipulation that you have to be actively looking for work in order to maintain your eligibility. And some states that are continuing to pay out federal unemployment benefits are reinstating that condition on their own, that’s something we’ve seen in Arizona, North Carolina, Rhode Island, and other states, so I would keep an eye out for announcements from your state government as well just so you aren’t blindsided by that change.

I expect more and more states to bring back the work search requirement over the next few months, and now that there’s a precedent for ending the federal supplemental payments entirely it wouldn’t shock me for some states, particularly red states or states with Republican governors, to follow that model and potentially introduce new incentives like we’ve seen in Montana to give unemployed people an extra reason to go back to work.

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