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Market Extra: It’s a ‘race to the bottom’ as states end unemployment benefits too soon, critics say


One year after the pandemic locked down economies, leaving millions of Americans out of work, over a dozen states are taking steps to curtail jobless benefits, a move that some analysts said risks deepening poverty and inequality, and puts those states in a worse position for future downturns.

At last count, 18 states have announced that they’ll opt out of the supplementary unemployment benefits provided by the federal CARES act, while another eight are considering rolling back their own state programs, according to a report from the National Employment Law Project.

Read: 2 million Americans will lose extra unemployment benefits—here’s when it will happen in your state

“This is a pivotal moment for the unemployment program,” said Andrew Stettner, a senior fellow at The Century Foundation. “State legislatures and governors are given a lot of authority on this, and it’s pretty clear that left to their own devices a lot of states are negative on the program. We had a period of sympathy for people when the economy shut down. But as things change, especially in the southern states, as it got to be more concentrated among African-Americans, sympathy for the unemployed has eroded.”

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Governors in states ending benefits, which are otherwise set to expire in September, say they are overly generous and make it difficult for employers to fill job vacancies.

“We will no longer participate in federal pandemic unemployment programs because Tennesseans have access to more than 250,000 jobs in our state,” that state’s governor, Bill Lee said on May 11, announcing an end to participation in federal programs. “Families, businesses and our economy thrive when we focus on meaningful employment and move on from short-term, federal fixes.”

“These moves by these states is really wrong,” said Nicole Marquez, director of social insurance at NELP. “It’s going to hurt people and people of color especially, it’s not going to help this so-called labor shortage, it’s not going to create jobs that have supportive child care or create jobs that are safe and healthy and pay a livable wage. It takes time to get to recovery.”

That’s a lesson that was learned in the aftermath of the 2007-09 recession. A comprehensive analysis showed that the unemployment program, both the regular benefits and the extended ones together, closed nearly one-fifth of the GDP shortfall caused by the recession.

See: I’m not used to counting on the government for my paycheck’: How 3 laid-off workers are coping months after losing their jobs

“There is reason to believe, however, that for this particular recession, the UI program provided stronger stabilization of real output than in many past recessions because extended benefits responded strongly,” wrote the report’s author, Wayne Vroman. “Multiplier effects in real GDP were estimated to average 2.0 for regular UI benefits and also 2.0 for extended benefits.”

That is, for every $1 spent on unemployment benefits, $2 of economic activity was generated. (Marquez notes that in general, $1 of unemployment insurance can usually be estimated to generate $1.61 locally — not to mention averting housing insecurity, food insecurity, and poverty.)

Opinion: How to fix the unemployment system to time extra benefits so they are just the right size to help workers and the economy

The pandemic creates an extra layer of complexity, she said in an interview, between uncertain child care and school openings, not to mention concerns about health and safety.

Still, Stettner said, “people always complain about unemployment benefits keeping people from working. It usually happens at these inflection points, when things are just opening up and jobs are opening up but people seem to be just sitting there.”

Right now, most of the “complaining” is among a few sectors, where jobs are the least attractive and pay and support may not have caught up to the new COVID normal, he said, “but we’re not using a scalpel, we’re using a sledgehammer. Unfortunately it’s gotten pretty ideological pretty quick.”

One of the most closely watched situations after the 2007-09 recession was in North Carolina, which became the first state to sharply curtail benefits in mid-2013, when its jobless rate was 8.1%.

In the first few months after that step, the jobless rate fell to 7.1%, the number of jobless fell by over 33,000, and measures of workforce participation increased, according to a 2013 analysis.

What that analysis leaves out is the long-term impact on a state’s unemployment picture. North Carolina and other states that starved their programs were among the least-prepared in 2020 when millions lost jobs in the blink of an eye. Florida’s system could only process tens of thousands of claims even as more than half a million tried to apply; North Carolina earned the dubious distinction of being the “Worst State to Be Unemployed” from ProPublica last year.

Many of the states that are opting out now “had the most difficulty paying the benefits after the pandemic hit,” Stettner told MarketWatch. “They undermined their whole program and when they needed it, it wasn’t there.

“I think this contributes to the stratification of the states, with higher levels of poverty and child poverty in places where you don’t have income support for people. It’s a self-defeating prophecy. In some of these states, it’s a vicious cycle: they need to have low wages and poor conditions to be competitive. It’s a race to the bottom.”

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