Personal Finance

Here’s Why $300 A Week Unemployment Benefits Aren’t Driving Worker Shortages

At least six states have now announced that they will stop paying out the $300 a week extra federal unemployment benefit to jobless workers. The six states, all led by Republican governors, claim that the payments are dampening the economic recovery by making it harder for businesses to hire workers. Data released last week by the Bureau of Labor Statistics fueled this argument when it showed the economy had only added 266,000 jobs in April, far below expectations. Republicans seized the jobs report and claimed that Biden’s policies, specifically the enhanced unemployment benefit, were contributing to a worker shortage. Not only is a single month’s job report is a poor reflection of more systemic trends, but there are also many other reasons driving worker shortages.

Republican-Led States Cancel $300 A Week Federal Unemployment Benefits

On Tuesday, North Dakota became the sixth state to announce a stop to participation in the federal pandemic unemployment compensation (FPUC) program that provides an extra $300 a week in unemployment benefits to jobless workers. The other states are Arkansas, Alabama, Mississippi, Montana, and South Carolina.

MORE FROM FORBESAnother State Cancels $300 Weekly Unemployment Benefits; ‘More States Expected To Follow’

Republicans have argued that the enhanced benefits are depressing hiring by discouraging Americans from going back to work. “We have flooded the zone with checks that I’m sure everybody loves to get, and also enhanced unemployment,” Senate Minority Leader Mitch McConnell said last week. “And what I hear from business people, hospitals, educators, everybody across the state all week is, regretfully, it’s actually more lucrative for many Kentuckians and Americans to not work than work.” Senator Ben Sasse made a similar point. “Here’s the deal: Bad federal policy is making unemployment pay more than work, and millions of jobs aren’t getting filled,” he said in a news release.

For Some, No Actual Choice Between Collecting Unemployment And Returning To Work

It is crucial to note that refraining from work is not an option that Americans can simply opt to take advantage of on their own. As Senator Rob Portman, Republican from Ohio, correctly remarked in 2020 when talking about the enhanced unemployment benefits, “under the way [the CARES Act] works in Ohio and other states and under the federal law if you are leaving a job because you would rather go on higher wages under unemployment you’re not eligible. So if you leave a job, you’re not eligible for unemployment. You’re only eligible if you are fired or furloughed, you’ve got to be laid off essentially,” Portman said.

Additionally, Americans are only eligible for enhanced benefits while their employer is closed as a result of the pandemic. “If an employer has a job for you,” Portman added, “those employers can contact the unemployment insurance office and that person will no longer be eligible for benefits because a person has a previous job even though that job may pay less.” While generally correct, there are some qualifying circumstances included in the CARES Act that allow Americans to refuse to go back to work and still be eligible for benefits, including if one is a primary caregiver and a child’s school is closed.

Therefore, for some Americans there is no actual choice between collecting unemployment benefits and returning to work. It only applies to a subset of individuals who were involuntarily fired or furloughed and whose employer will not rehire them. Admittedly, as the economy opens up, this subset has grown and additional rules apply.

In other words, workers who turn down a suitable offer will, in most circumstances, lost access to unemployment benefits. President Job Biden said yesterday that his administration will emphasize this point to jobless Americans and also work with the Labor Department to reinstate work search requirements. These rules had been suspended during the pandemic, but will again require those receiving benefits to prove that they are actively searching for work.

Myriad Other Factors Driving Worker Shortages

While Republicans have focused on the $300 a week unemployment benefits, others have pointed to myriad other factors that are holding back hiring. To start, more than 4 million people have said they are not working due to fear of getting or spreading coronavirus, according to Census survey data from the end of April. Moreover, 6.8 million said they were caring for children who weren’t in school or daycare, which is causing them not to work.

President Biden cited these reasons — child care constraints, school and daycare closures, and fears of contracting Covid-19 — as the main causes of the labor shortage. Treasury Secretary Janet Yellen concurred, saying she “didn’t think the major factor [holding back hiring] is the extra unemployment.” She pointed to the same issues as Biden as well as supply chain bottlenecks as the key drivers. For example, many companies like automakers and construction firms are contending with “clogged supply chains”, which has forced them to slow production and pull back on hiring.

Inconsistency In Republican Argument

Additionally, there is an inherent inconsistency in Republican arguments about unemployment benefits causing a worker shortage, which is that the April job increases skew towards lower-paying sectors. Workers in these sectors would presumably benefit the most from the $300 a week in benefits and be the least motivated to return to work. “Hard to single out unemployment benefits as ‘dampening’ job growth in the lowest-wage industries when those same industries are the ones with the fastest job growth,” Ben Zipperer, an economist at the left-leaning Economic Policy Institute, tweeted last week.

Yellen made a similar point when she noted that strong growth was coming in sectors like leisure and hospitality, where “the relative financial benefit to staying on UI high. If UI were holding back jobs overall, one wouldn’t see strong growth in that sector.”

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