Republicans and businesses have been complaining that workers are not taking available jobs because they can make more on unemployment. As Republican-led states repeal the federal supplemental unemployment benefits program, we will soon know whether this complaint has merit.
Many Republicans have argued that this payment creates perverse incentives. Their logic was simple: The extra flat benefit plus state-level check meant many low-wage workers could earn as much or nearly as much staying at home than taking a job. The $300 check alone equaled $7.50 an hour for someone working a 40-hour week, more than the federal $7.25 minimum wage. The rest of the payments vary by state and depend on how much people earned before losing their jobs, but even low-wage workers in stingy states could expect to earn at least a significant portion of their pre-unemployment wage in state benefits. If someone can earn $10 to $15 an hour whether they sit at home or go to work, it’s pretty clear what many rational people would choose to do.
The weak April unemployment report brought this debate to a head. Economists had expected employers to create roughly 1 million new jobs; instead, the report showed only 266,000 were added. Democrats denied that the supplemental benefits were to blame, but data from the Bureau of Labor Statistics show that there were a record-high 8.1 million job openings in March. BLS data also show there are only 1.2 unemployed people for each opening, a figure historically associated with low unemployment and a booming economy. So there are plenty of jobs to take; for some reason, people aren’t taking them.
Republican-led states are betting that the federal supplements are the reason. By Monday, five red states — Alabama, Arkansas, Mississippi, Montana and South Carolina — had announced that they were pulling out of the federal program. That number has grown to at least 16, including the large states of Georgia, Ohio and Arizona. The details differ in each state, but unemployed workers in all of them will stop receiving their extra $300 a week no later than mid-July.
Many will replace the unemployment benefit with a substantial re-employment bonus. Arizona is emblematic of that effort, as Republican Gov. Doug Ducey announced Thursday. Ducey, who was chief executive of the Cold Stone Creamery ice cream chain before entering politics, said unemployed workers whose new job paid $25 an hour or less can qualify for a $2,000 back-to-work bonus. He also said the state would provide three months of child-care assistance for bonus-eligible workers who return to work, as well as scholarships for community college or GED preparation for those who want to upgrade their skills. Montana also has a back-to-work bonus for unemployed workers, and Republicans in Louisiana and the U.S. House have introduced bills to adopt the idea.
This stampede creates a natural experiment that will test whether supplemental benefits are an impediment to working. If job openings are filled faster in states ending their participation in the program than in states still participating, we’ll have a clear case that they are creating a disincentive to work. This should show up pretty quickly in federal data, either through decreases in a state’s unemployment rate, an increase in a state’s labor force participation rate or (ideally) both. If these states don’t see better results, however, it should be clear that the benefits were not significantly affecting employment decisions.
This experiment’s outcome will also have a partisan dimension. To date, no Democratic-controlled state has suspended its participation in the federal supplementary benefit program. If that continues, and if the GOP-led states demonstrate better employment outcomes, Republicans will crow that their business-friendly approach is better for American workers. That’s not something President Biden will want to hear as he moves into the midterm elections. But if Republican states’ policies don’t result in more jobs, expect Democrats to attack Republicans for being heartless and television news shows to highlight wrenching personal stories of families who lost their benefits.
We almost never get to see a real-life test of an economic theory’s validity. Republican governors are giving the country that test now; much rides on the outcome.