GOP governors move to cut unemployment benefits as debate rages over effects

Seven GOP governors in the past week have announced plans to cut emergency unemployment benefits, a bid to push people into work that critics say would also cut off vital support for hundreds of thousands of people.

The issue is a high-stakes gamble that Republicans say will hasten the economic recovery and save taxpayer dollars, but Democrats worry will pull the rug out from under low-income families and make it harder to get the economy back on track.

Republicans blame the generous unemployment benefits for fueling a labor shortage, noting that some people would have to accept pay cuts to go back into the job market.

“Families, businesses and our economy thrive when we focus on meaningful employment and move on from short-term, federal fixes,” Tennessee Gov. Bill Lee (R) said of his decision, announced Thursday. The other states planning to cut benefits include: Alabama, Mississippi, South Carolina, Arkansas, Montana and Missouri. Georgia is mulling joining the group.

The April jobs report released last Friday showed that the labor market added a disappointing 266,000 new jobs, well below the 1 million economists expected. 

Paired with a record-setting number of reported jobs opening in March and anecdotal reports of businesses struggling to hire workers, Republicans have been quick to suggest that generous unemployment benefits are to blame.

The questions about the role of unemployment insurance began with the very first major COVID-19 relief bill last March, which extended the timeline for benefits, created a special program for gig workers and the self-employed, and provided a $600 weekly supplement.

“If we don’t change this provision, we will have created a great incentive for people to leave the workforce. Under the current setup, some people’s wages could actually be temporarily increased by 150 percent by leaving the workforce,” Sen. Lindsey Graham (R-S.C.) said at the time, after failing to pass an amendment to lower the amount. 

That supplement expired last summer, only to be replaced by a temporary measure providing $300-$400 for a few weeks in the autumn. The December COVID-19 relief bill and President Biden’s $1.9 trillion March bill reinstated the benefit at $300 through September. 

In Tennessee, the extra benefit pushes the $275 weekly maximum benefit up to $575, which amounts to over $14 an hour, nearly double the federal minimum wage of $7.25.

But despite GOP protests over the continued benefit, Democrats counter that numerous studies show higher benefits did not stop people from going back to work, which would likely be more steady than the tumultuous and time-limited benefits.

Any labor shortage, they argue, is the result of other factors, such as lack of access to child care and ongoing health concerns related to the pandemic. Pulling it back would eliminate a lifeline keeping millions from ruin amid a once-in-a-century economic downturn.

“As Republican governors continue their economic sabotage by pulling the rug out from jobless workers, it’s important to note that thousands of workers in these states are not only losing the $300 weekly boost, they are losing every single penny of their income,” Senate Finance Committee Chairman Ron Wyden (D-Ore.) said in response the spate of announcements.

Labor supply, he said, was more likely constrained because of parents struggling to find child care arrangements as the economy transitions back toward a state of normalcy. Many schools remain closed or only offer in-person learning part time, while arrangements for child care during summer remain in flux.

“Mothers without child care are not going to be back on the job in just a few weeks’ time, and they shouldn’t face financial ruin for living in states run by Republicans,” Wyden said.

April’s job report showed that while men were getting back into the labor market, women actually dropped out, adding credence to the concern that child care is an issue.

Economists broadly say there is some merit to both arguments, but the evidence suggests that the additional benefits are not to blame for trouble in the labor market, which itself may appear overblown.

“If you look at the BLS data, there’s not a labor shortage,” said Beth Ann Bovino, chief U.S. economist at S&P Global, referring to data from the Bureau of Labor Statistics.

The country officially has 10 million people who are still unemployed, a figure that could be higher than 13 million once it includes people who have dropped out of the labor market altogether.

“I suspect that there are pockets of tightness in the jobs market, but if the jobs market was so tight, how come wages aren’t climbing?” she asked.

Even in states with lower unemployment numbers, joblessness remains higher among Black and Latino communities.

Treasury Secretary Janet Yellen said that if extra benefits were holding people back, one would expect greater unemployment levels in low-wage states, where the extra benefits would go further. 

“In fact what you see is the exact opposite,” she said Friday. “We have had a very unusual hit to our economy, and the road back is going to be somewhat bumpy.”

Mark Hamrick, senior economic analyst at Bankrate, said that the emergency programs had filled holes in an unemployment system he said had been “woefully inadequate” for years.

“I am concerned that as some of these states try to go back to their default programs, [that] we’re going to be back in the same leaky boat, where some people may really be in deep trouble.”

While the stakes appear high, the moves to curtail unemployment benefits may be somewhat less dramatic. For one, the benefit cuts are not set to go into effect for another six or seven weeks, by which point the economy could make significant strides forward. 

With emergency benefits set to expire Sept. 6, that would amount to curtailing just about one month’s worth of benefits, though Democrats are pushing for an extension.

In addition, of the seven states that have announced plans to scale back the benefits, only one — Mississippi — has an unemployment rate higher than the national average of 6.1 percent. Two of them have rates as low as 3.8 percent.

Wyden, who has called for an unemployment overhaul that would offer expanded benefits for states with unemployment rates above 5.5 percent, said the official unemployment numbers do not reflect the true level of need.

“The most commonly used unemployment rate did not reflect the severity of the economic devastation, particularly for working-class Americans,” he said, noting that Federal Reserve Chairman Jerome Powell has frequently argued that the “real” unemployment rate was several points higher than the official data because it doesn’t count people who are not formally looking for work.

“Given that working-class folks are the least likely to have had a financial cushion before the pandemic, it’s especially important that their income not be cut off early.” 

David Cooper, a senior economic analyst at the left-leaning Economic Policy Institute, said that allowing people a little extra time to find more suitable work would actually benefit the economy in the long run. 

“It may be that some job options being presented to them are very low-paying jobs, and if enhanced unemployment benefits are giving workers a little more bargaining power, maybe that’s a good thing,” he said.

“It doesn’t make any sense whatsoever to pull back on unemployment benefits simply because restaurant owners are struggling to find staff.”