Investor Alert

May 15, 2021, 11:17 a.m. EDT

Some states are cutting unemployment payments to push people back to work — are extra benefits really keeping Americans out of the labor force?

By Elisabeth Buchwald

Is there a disconnect in the labor market?

Job openings in the U.S. topped 8 million in March for the first time ever, the Labor Department said Tuesday , compared to 7.5 million open jobs the previous month, but many employers say they can’t find workers.

Given Friday’s disappointing jobs report , which found that 266,000 jobs were added last month compared to most economists’ forecast of 1 million jobs, many lawmakers are pushing to discontinue federal unemployment benefits, which they claim would eliminate a growing labor shortage. 

President Joe Biden acknowledged that “some employers are having trouble filling jobs,” in his prepared remarks on the jobs report.

But when asked if enhanced unemployment benefits kept some workers from returning to work he said, “No, nothing measurable.”

White House economist Jared Bernstein said that’s true even in the states where the ratio between the amount of money people receive in unemployment benefits versus their prior wages is highest. He added that “we’re listening to these anecdotes [of labor shortages] we take them seriously, we’re watching them,” he said in a Bloomberg interview on Friday.

But some feel the enhanced unemployment benefits play a big role in people’s willingness to go back to work. The governors of South Carolina and Montana trace labor shortages employers are facing in their states to federal unemployment benefits and they are eliminating them in their states.

“At the current time, there are 81,684 open positions in the state of South Carolina. The hotel and food-service industries have employee shortages that threaten their sustainability,” said South Carolina Department of Employment and Workforce director Dan Ellzey.

“While the federal funds supported our unemployed workers during the peak of COVID-19, we fully agree that reemployment is the best recovery plan for South Carolinians and the economic health of the state.”

South Carolina Gov. Henry McMaster, a Republican, directed his state’s labor department to end all federal unemployment programs on Thursday. That includes the extra $300 a week jobless Americans are eligible to receive through September as part of President Joe Biden’s American Rescue Plan stimulus package. 

Gig workers, independent contractors and self-employed people wouldn’t receive any benefits. These workers only became eligible for federal unemployment benefits through a CARES Act program known as Pandemic Unemployment Assistance (PUA).

Montana Gov. Greg Gianforte, a Republican, is taking matters one step further. 

In addition to ending Montana’s participation in the federal unemployment benefits programs, effective June 27, Gianforte said the state “will launch a return-to-work bonus program, utilizing federal funds authorized by the American Rescue Plan Act,” according to a statement released on Tuesday.

The program would pay a one-time bonus of $1,200 to people who get hired who were previously receiving unemployment benefits. A person must have been receiving unemployment benefit insurance as of May 4, accept a new job, and keep that job for a minimum of 4 paid weeks of paid work.

“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,” Gianforte said.

“Incentives matter,” he added, “and the vast expansion of federal unemployment benefits is now doing more harm than good.”

The Department of Labor did not immediately respond to MarketWatch’s inquiry about whether the state could legally repurpose funds that were set aside for unemployment benefits.

The U.S. Chamber of Commerce, a lobbying group for businesses, agrees with McMaster and Gianforte .

“The disappointing jobs report makes it clear that paying people not to work is dampening what should be a stronger jobs market,” U.S. Chamber of Commerce executive vice president and chief policy officer Neil Bradley said in a statement on Friday.

“One step policymakers should take now is ending the $300 weekly supplemental unemployment benefit. Based on the Chamber’s analysis, the $300 benefit results in approximately 1 in 4 recipients taking home more in unemployment than they earned working.”

Other factors keeping Americans from returning to work

Ben Zipperer, an economist at the Economic Policy Institute, a progressive think-tank, tweeted this in response to the U.S. Chamber of Commerce:

Zipperer said other factors, including fears about going back into the workplace and inadequate wages, play a role in the equation. “Hard to overstate the difficulty and stress a service sector job now requires: additional health and safety protocols, dealing with anti-vaxxers, serious risk of illness,” he wrote on Twitter. “Asking someone to work at pre-pandemic wages is asking for a real wage cut.”

Recent research suggests that beefed-up unemployment benefits don’t keep workers from re-entering the workforce, or at least, trying to: A study by the Chicago Federal Reserve from earlier in the pandemic, when jobless Americans were receiving $600 extra a week in benefits, founded that people collecting benefits “search more than twice as intensely” for jobs as those who had exhausted their benefits.

Sen. Ron Wyden, a Democrat from Oregon who heads the Senate Finance Committee, labeled efforts to cut off enhanced unemployment benefits as “deeply disturbing.”

“Enhanced jobless benefits helped save the economy by ensuring millions of families could pay rent and buy groceries during this crisis,” he said Friday in a statement. “Cutting off all benefits while millions of workers have not yet been able to return to work could cause tremendous financial pain, and sabotage our economic recovery.”

“Study after study has shown that enhanced jobless benefits have not prevented workers from returning to their jobs, and there are other factors at play here, like lack of child care for millions of women, and ongoing concern about the virus.”

Employees’ willingness to return seems to also vary by sector. “[T]he jobs report shows large increases in leisure and hospitality jobs, suggesting ‘generous’ unemployment insurance is not a barrier to work in those industries,” said Chad Stone, chief economist at the Center on Budget and Policy Priorities, a think-tank focused on the impact of budget and tax issues on inequality and poverty.

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