Arkansas became the third state to announce plans to cancel the extra $300 per week federal benefits that unemployed residents were receiving. The state joined Montana and South Carolina who had announced a similar decision last week and reflects a new Republican strategy aimed to push more people back to work. “More states are expected to follow,” Kevin Brady, who is the top Republican on the House Ways and Means Committee, predicted on Friday.
Do Extra Unemployment Benefits Create A Disincentive To Work?
Ever since the Cares Act was passed in 2020, Republicans had argued that the supplemental federal unemployment benefits were a disincentive to return to work and could stifle economic recovery. Senator Lindsey Graham echoed many Republicans in saying last year that the extra money could hamper the ability of businesses to hire, stifling the economic recovery. "If a person is making $23 an hour on unemployment, it's going to be hard to get you go back to work for a $17 hour job," Graham remarked.
At the same time, the $600 unemployment checks, which have now been scaled back to $300, had been an essential lifeline given the swiftness and severity of the economic collapse in 2020. “Honestly, it was just what I needed, maybe even better,” Sarah Gordon, a musician and actor in New York City who has relied on the federal $600 unemployment benefit boost since losing her job in fitness, told Dylan Matthews of Vox. “After NYC rent (mine is a little below average for living by myself) plus bills and other expenses, it put me just even,” Gordon added.
Indeed, several academic studies confirmed that the initial CARES Act benefits, including the enhanced unemployment benefits, were crucial to keeping Americans afloat. A team from Columbia’s Center on Poverty and Social Policy found that between 2019 and 2020, poverty rose 0.2 percentage points, from 12.5 percent to 12.7 percent; however, with the CARES Act stimulus, they calculated the poverty rate would have risen to 16.3 percent.
The Columbia study “in particular highlights the role of the $600-a-week boost to unemployment benefits,” according to Matthews. For example, among those who lost their jobs and received some stimulus - $1,200 stimulus checks - but not unemployment insurance, the poverty rate fell from 35.1 percent to 30.2 percent. However, for those who did receive unemployment benefits, the poverty precipitously declined from 19.5 percent to 6.4 percent. “The safety net is doing what it’s supposed to do for most families — helping them secure a minimally decent life,” said Zachary Parolin, part of the Columbia research team, last year. “Given the magnitude of the employment loss, this is really remarkable.’’
April Jobs Report
Republicans were emboldened after the Bureau of Labor Statistics released data last week showing that the economy had only added 266,000 jobs in April, far below expectations. Hours after the unemployment data release, Asa Hutchinson, the governor of Arkansas, announced that the state would stop providing the extra $300 payments. Hutchinson said that the state’s economy was “rebounding so quickly,” that it didn’t need to continue with the payments.
Republicans tore into the jobs report claiming that Biden’s policies were contributing to a worker shortage. But Biden and others defended the report and the trillions in aid that have been unleashed. “More help is needed. … We’re still digging out of an economic collapse that cost us 22 million jobs,” Biden said. “Let’s keep our eye on the ball.”
On Monday, the White House elaborated with Press Secretary Jen Psaki stating that it does not believe the extra benefits are leading to a shortage of workers. "We don't see much evidence that the extra unemployment insurance is a major driver in people not rejoining the workforce," she said. "There are other factors—bigger factors—that have been contributing to the numbers we saw on Friday."
The Upshot
If Brady’s prediction is correct, expect more Republican-led states to stop paying federal unemployment benefits. Federal Reserve Chairman Jerome Powell stated last week that it was "not clear" federal unemployment benefits were causing a labor shortage. He continued saying that it wouldn’t be a factor for much longer “because he expects the federal government will not extend payments past September.” Those who are unemployed and stand to potentially receive upwards of $4,000 in extra federal payments through September, may beg to differ.
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