States are ending federal unemployment benefits early. What to know

Ohio governor Mike DeWine said Thursday the state would end its participation in federal unemployment programs on June 26.

Justin Merriman | Getty Images News | Getty Images

So what’s up?

At least 16 states have chosen to opt out of federal unemployment benefit payment programs.

As of Thursday, this includes Alabama, Arkansas, Arizona, Georgia, Idaho, Iowa, Mississippi, Missouri, Montana, North Dakota, Ohio, South Carolina, South Dakota, Tennessee, Utah and Wyoming.

All are run by Republican governors. Montana was the first state to announce its withdrawal on May 4th.

How fast does that happen?

The American rescue plan made these federal programs available through Labor Day September 6th.

States end their participation about two or more months early – from June 12 to July 10. (Varies depending on the state.)

How many people are affected?

Governors’ decisions would cut or cut benefits for nearly 2 million people.

Around $ 11 billion in total funding is at stake, according to Andrew Stettner, Senior Fellow at the Century Foundation.

Which programs are involved?

The states are withdrawing from the programs that were passed in March 2020 by the CARES law.

Together, the programs increased the amount of weekly aid, extended its duration, and offered funding to workers who would normally not be eligible for state benefits.

How will my performance change?

States will stop spending an additional $ 300 a week on workers.

Those in receipt of state benefits continue to receive this allowance, which is typically half of their layoff wage. According to the Department of Labor, the average person was receiving $ 350 a week in government benefits in March.

(Benefits vary widely by state. For example, opt-out states ranged from $ 195 per week in Mississippi to $ 480 in North Dakota.)

More from Personal Finance:
Tax returns for 2020 are due on May 17th with the IRS
The interest rates on new federal student loans will rise nearly 1%
Senators urge the FTC to protect itself from travel fraud

Certain workers not only receive a benefit cut, but also lose the benefit entirely.

These groups include the long-term unemployed (who have exhausted their maximum allotment of government benefits) as well as gig workers, self-employed, freelancers, and others collecting what is known as pandemic unemployment assistance.

This is the case in most – but not all – states. In Arizona, for example, residents only lose access to the $ 300.

Why does this happen?

The governors have pointed to labor shortages as a driver of their decision to turn down federal funding.

They claim that increased unemployment benefits are an incentive for people to stay home and not look for work. Companies have difficulties filling vacancies.

“While these benefits provided additional financial assistance during the height of COVID-19, they were meant to be temporary, and their continuation has instead exacerbated the workforce problems we face,” said Mike Parson, governor of Missouri.

Is there a labor shortage?

According to economists, it is difficult to determine the answer with the data available. However, there is evidence that labor shortages are occurring in at least some areas and sectors.

According to Daniel Zhao, senior economist at Glassdoor, a job and recruiting site, there are two compelling pieces of evidence.

Job vacancies hit a record high in March, the Bureau of Labor Statistics reported on Tuesday. Meanwhile, the U.S. economy hired 266,000 new employees in April – much weaker than the 1 million expected, the bureau said last week.

In other words, there is strong demand for labor when the economy reopens, but not an adequate flood of workers on the payroll.

Where are they most acute?

It appears that bottlenecks are most pronounced in industries such as leisure and hospitality, including hospitality and restaurants.

This is where most of the anecdotes about business owner shortages appear to be, and this is where companies like McDonald’s and Chipotle are raising wages and offering bonuses to attract workers, Zhao said.

Some states are likely to experience a labor crisis more than others.

In Montana, for example, unlike the rest of the United States, the job market seems to be close to pre-Covid status, according to Peter Ganong, assistant professor of public order at the University of Chicago.

In many (but not all) states that are de-registering from federal benefits, the unemployment rate is below the national average of 6.1%. (In context, the national rate is still almost double what it was before the pandemic at 3.5%.)

Are unemployment benefits the problem?

Unemployment benefits likely play at least a minor role, economists said.

Research suggests that higher benefits reduce job search intensity. This wasn’t a problem earlier in the pandemic when there were hardly any jobs. But it’s hard to say how much they may or may not be a factor now.

Are there other factors?

The coronavirus – not unemployment benefits – is likely the main problem, according to labor experts.

New daily infections are on the decline, but they are still in the tens of thousands. Less than half (46%) of American adults are fully vaccinated, according to the Centers for Disease Control and Prevention. (This proportion, which includes senior citizens, is lower in the working population.)

I don’t think it’s possible to quantify how much each factor is contributing to the labor shortage. So many different headwinds are blowing at the same time.

Daniel Zhao

Senior Economist at Glassdoor

Vaccines were also not widely used until recently. According to Diane Swonk, chief economist at Grant Thornton, it takes workers two to six weeks to achieve the full effectiveness of the regime. This means that many will not be able to return to work safely until June.

There are other contributors to the pandemic as well: irregular school openings, childcare obligations, and a lack of after-school programs that largely help low-income parents. Many baby boomers have chosen to retire early and may not re-enter the world of work – reducing the overall labor supply.

The discussion of labor shortages is also often separated from the question of wages and hours – workers may want a job but not at current wages or on irregular or part-time schedules.

It can also be unrealistic to expect workers to take a job at the same rate that jobs are posted. Labor supply usually takes longer to respond than demand, Zhao said.

“I don’t think it’s possible to quantify how much each factor is contributing to labor shortages,” he said. “There are so many different headwinds blowing at the same time.”

In addition, states deregistering from federal funding for unemployment can reduce demand for business – and the need for additional labor – if that contributes to lower spending at the local level.

Some states pay a return to work bonus. What’s this?

Montana and Arizona are replacing improved unemployment benefits with a one-time bonus for people who find and keep a job.

Arizona is offering $ 1,000 and $ 2,000 bonuses (subject to availability) for those who find part-time and full-time jobs, respectively. You have to work at least 10 weeks.

Montana pays a $ 1,200 bonus to those who find full-time employment for four weeks.

Is it all set in stone?

Not necessarily.

Senator Bernie Sanders, I-Vt., And the National Employment Law Project this week asked U.S. Secretary of Labor Marty Walsh to intervene on behalf of workers.

They argue that Walsh has the legal authority to prevent loss of benefits for self-employed, giants and other workers who collect PUAs based on certain wordings in the CARES law. (It appears, however, that the same flexibility would not apply to other programs.)

It is unclear whether the Department of Labor will attempt to intervene.

Comments are closed.