Fact Sheet: What’s at Stake As States Cancel Federal Unemployment Benefits

On May 4, 2021, Montana Governor Greg Gianforte announced that his state was backing out of federal pandemic unemployment benefits, including the $300 per week supplement (PUC), Pandemic Unemployment Assistance (PUA) for gig workers and others not eligible for UI, and Pandemic Emergency Unemployment Compensation (PEUC) for the long-term unemployed. Governors from South Carolina, Alabama, Alaska, Arizona,  Iowa, Indiana, Idaho, Georgia, Missouri, Ohio, Wyoming, Mississippi, Arkansas, South Dakota, Tennessee, Utah, West Virginia and North Dakota quickly followed suit  and more could follow. This fact sheet outlines the damage that these governors will inflict upon their most vulnerable populations (especially workers of color) and their economy by making this rash decision, and the potential harm to the recovery if more of the nation’s governors were to take a similar step.

Understanding the Cut-off of Benefits

Federal pandemic unemployment benefits are 100-percent federally funded and are delivered to workers at no additional cost to the states. However, the federal government relies on states to pay out these benefits, and they are generally paid out under the terms of an agreement between each state’s governor and the U.S. secretary of labor. Typically this agreement is a legal formality, as states have typically been eager to direct money to their citizens. While the American Rescue Plan signed by President Biden extended these benefits to September 6, 2021, the states mentioned above have chosen to end their benefits early, as soon as June 12 in Missouri and slightly later than in other states. These derelictions of responsibility are an affront to workers in these states. The CARES Act, which started Pandemic Unemployment Assistance, proclaims that “Secretary shall provide to any covered individual unemployment benefit assistance while such individual is unemployed” due to COVID-19 and not eligible for other unemployment benefits. Workers were right to believe that they would receive these benefits through September 6, but now they’ve been denied this federal aid. To this point, the National Employment Law Project has called on President Biden to require the continued payment of benefits to workers in these states.

On a national basis, benefits for 16 million workers, at a value of nearly $100 billion, are at stake.

Table 1, below, plots out the stakes in terms of workers and funds for each state were that state to pull benefits, including the decision to end the $300 top-off which affects all workers, and the ending of PUA, MEUC, and PEUC. In the eighteen states that have already announced pulling out of pandemic benefits, 2.2 million workers could be cut off early, at a cost of $12.4 billion.¹ Thus far, only Republican governors have taken this step of pulling out of benefits early. If all of the Republican governors were to pull out, those totals would grow to 4.8 million workers. On a national basis, benefits for 16 million workers, at a value of nearly $100 billion, are at stake.

Table 1

Cut Unemployment Benefits Will Hit Workers of Color the Hardest

There are significant racial consequences that will follow the decisions to eliminate federal pandemic benefits. Fifty percent of South Carolina Unemployment Insurance recipients are Black, as are 54 percent of Alabamians on UI and 66 percent of Mississippi’s claimant population, three times or more than the national average of 18 percent. The employers complaining the most about worker shortages are the ones that have depended on a largely disempowered, non-unionized, Black (and Latinx) workforce that make low wages. The cut-offs affecting these states thus will particularly target Black communities that endured near or over 10 percent unemployment rates as recently as the end of September (nearly twice the rate for whites). Federal unemployment programs, like PUA and PUC, were put into place to make up for the economic inequities that high-unemployment communities have faced as a result of state policies (including Montana’s Native American populations, the fifth-largest by proportion in the country). Moreover, Black Americans have been hit the hardest by the pandemic and have special reason to be reticent about returning to work in states that have reopened despite low vaccination rates. The governors who have made the move to cut off benefits have rejected the leveling impact of federal programs, subjecting their most vulnerable populations to greatly increased risk of poverty and COVID-19 infection.

Cutting Off Benefits Is Economically Short-Sighted

The governors who have withdrawn from the programs are complaining that federal benefits are holding back their recovery because certain employers cannot find the workers they need. However, this claim ignores the fact that the money from federal benefits flows into local businesses through consumer spending, generating another $1.61 in economic activity for every dollar spent. Any benefits that the state’s businesses might receive from some of these workers, in terms of faster ability to hire them in the short term, would be overwhelmed by the loss of unemployment debit card swipes hitting the cash registers of those same businesses.

On a national level, there are still only 8 million job openings as compared to 16 million jobless workers, and the U.S. economy is still short over 8 million jobs from before the pandemic. With jobs depressed, pandemic benefits have contributed to a fast start for gross domestic product in the first quarter of 2021 (up 6.4 percent in the first quarter of 2021, compared to 4.3 percent in the 4th quarter of 2020).

There Is Limited Evidence that Pandemic UI Is Holding Back Job Creation

Outside of the minimum wage, the employment incentives of unemployment insurance have been one of the most studied issues in microeconomics. Unemployment benefits have a modest impact on the length of unemployment, with recent studies finding very modest elasticities between increases in unemployment benefit rates and the length of time unemployed. This includes a close comparison of neighboring counties in states that had access to ninety-nine weeks of unemployment during the great recession and those that did not. Careful economic research during the pandemic found that major changes in pandemic unemployment compensation, first from $600 to $300 in September, and then from $0 to $300 in January, had little impact either way on job finding rates. In particular, these studies contradict the conventional wisdom that non-college graduates and those getting the biggest boost in UI would be incentivized to stay home from work. For many, the COVID-19 pandemic has represented a uniquely temporary economic downturn. Transitory economic and public health barriers are driving many into unemployment and it is changes in these factors, not UI, that are largely driving the trend. To the extent that there are pockets of worker shortages, such as in the restaurant sector, it’s good news that employers are being forced to raise wages after months of reduced tips and high risks of infection from COVID-19 drove many away from these jobs.

Cutting Back UI Benefits Won’t Solve the Child Care Crisis

The COVID-19 pandemic forced schools to go to hybrid lessons and child care centers to close, resulting in women’s labor force participation falling to a thirty-three-year low in January, and as of April 2021, employment was down far more among women, especially women of color, than among men. In Montana, one of out of eight workers quit a job due to the lack of child care in 2020. Research found that nearly 30 percent of child care centers closed in South Carolina because of the pandemic, and the recovery won’t come fast enough for those cut off from pandemic benefits. Of the eighteen states that have cut off pandemic benefits, only six allow for state unemployment benefits in situations when child care is not available—leaving no safety net for many working parents.

The employer segments complaining the most about employer shortages should be training their attention on working with their governors to resolve child care issues in their states if they want workers to be available for jobs.

As pointed out by economist Kathryn Edwards, more than half of food services workers are women, and more than one in four Black and Latina women works in a service occupation. So the employer segments complaining the most about employer shortages should be training their attention on working with their governors to resolve child care issues in their states if they want workers to be available for jobs. Cutting off these benefits at the beginning of the summer, which is the hardest time to locate child care, is far more damaging to families than if they were to continue until September when schools open.

The Biden Administration Has Offered a Productive Alternative Approach—or Search and Reemployment Services

On May 10, President Biden outlined an alternative approach to help more unemployed workers connect with available job openings. The president directed the U.S. Department of Labor to work with states to reinstate standard unemployment insurance requirements related to searching for a new job, and accepting a suitable job offer.

Despite what opponents to pandemic benefits have said, jobless workers can’t simply sit at home and collect benefits. While most states modified the typical federally mandated requirement to search for a job during the worst parts of the pandemic, the majority of states have reinstated rules that require recipients to be actively applying for new jobs. Given the progress of vaccine rollouts, it is legitimate progress to reinstate work search requirements with notable exceptions mentioned by the administration, like preserving benefits for those who do not have access to child care. This is an action that has been taken by Democratic governors, like Janet Mills of Maine, even before President Biden’s speech.

The administration also pledged to work with states to reintroduce cost-effective reemployment services programs that coach UI recipients on their job search. The pandemic is still causing major changes in the economy, and workers will need to have time to survey the labor market and see what suitable jobs are available to them. Proactive job searches are part of the transition out of the pandemic crisis, and given the still-large shortage of jobs, many workers will need through the summer or beyond on benefits to find work. Indeed, recent research has confirmed that unemployment benefits actually give recipients more time to find better-paid, more appropriate jobs than those not on aid.

We Must Continue to Support Our Workers

Aid to the unemployed has been the linchpin of the nation’s response to the economic damage of the pandemic. American workers deserve support until the economy has turned the corner and public health and child care conditions have fully turned around. The decisions these states have taken are deeply misguided, and no other states should follow suit.

header image: People wait in line at a food distribution outside of a church in the South Bronx on March 10, 2021 in New York City. source: Spencer Platt/Getty Images

1. This analysis assumes states could cancel it within 12 weeks of September 6 once the administrative requirements for shutting down the programs are met.

Tags: unemployment, u.s. economy, unemployment benefits, covid-19, biden-harris administration