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The Republican labor-shortage fix looks like a bust

·Senior Columnist
·4 min read

Republican governors thought they had some deft counterprogramming with a strategy to spur workers back to their jobs: At least 25 GOP governors canceled federal jobless benefits for their citizens before the program expires in September.

That was supposed to eliminate the incentive to stay home and collect benefits, while helping businesses lure badly needed workers. It also gave Republicans a pro-business policy alternative to the expansive government President Biden and Congressional Democrats are pushing.

A 'Help Wanted' sign is posted beside Coronavirus safety guidelines in front of a restaurant in Los Angeles, California on May 28, 2021. - Following over a year of restrictions due to the coronavirus pandemic, many jobs at restaurants, retail stores and bars remain unfilled, despite California's high unemployment rate, causing some owners to fear they will not be able to fully reopen by the June 15th date California has given for a full reopening of the economy. (Photo by Frederic J. BROWN / AFP) (Photo by FREDERIC J. BROWN/AFP via Getty Images)
A 'Help Wanted' sign is posted beside Coronavirus safety guidelines in front of a restaurant in Los Angeles, California on May 28, 2021. (Photo by Frederic J. BROWN / AFP)

But the Republican plan doesn’t seem to be working. As data comes in, there’s scant evidence that canceling the extra $300 per week federal jobless payment is boosting employment in Republican-led states. “There is little sign that workers are flooding back into the labor market in states where unemployment benefits have been cut,” Moody’s Analytics explained in a July 15 analysis. “The preponderance of evidence suggests that reduced benefits are not the cure for worker shortages.”

Moody’s Analytics looked at four different sets of data, including weekly unemployment claims, Google mobility data, job search trends and small-business payrolls. There’s some evidence red states are recovering economically faster than blue states—but that has been the trend all year and hasn’t changed since red states began canceling jobless benefits. One reason may be that blue states tend to have more big cities that continue to struggle with residual Covid outbreaks, such as Los Angeles.

First-time claims for state-based unemployment insurance, for instance, fell 22% in blue states from May 2 through July 10, and 35% in red states during the same time period. That makes it seem as if employment has been recovering faster in red states as governors have been canceling federal jobless aid. But the gap between red and blue states was the same from February through May, before any Republican governors began killing benefits. So there’s been no change since the governors blocked those $300 weekly checks. 

[Did you lose federal unemployment benefits? Please tell us how it affected you.]

Job search firm Indeed found that search activity ticked upward after a few of the first Republican states announced they would be ending federal jobless aid. But that trend reversed, and last month Indeed reported that job-search activity in 12 GOP states that cut off jobless benefits was lower than it had been earlier in the year. “It is unclear why search activity is below the baseline in states where federal benefits have ended,” Indeed economist Jed Kolko wrote. “If overly generous federal UI benefits were holding back job seekers, then we would expect search activity to increase, relative to the national trend, in states where those benefits have ended.”

In 13 other states ending the benefits later, job-search activity was a bit above the national trend in late June. That may reverse, too, however.

Oxford Economics examined the income consequences for people losing jobless aid in red states, and found that about 1 million people will lose the $300 weekly benefit once cancellations have gone into effect in all red states. That represents about $1.2 billion in collective lost income per week. While not huge compared with the overall economy, it's probably enough to offset anything gained from spurring people back to work. “Benefits discontinuation may end up doing more bad on the personal income ledger than good on the employment ledger of the economy,” chief US economist Gregory Daco wrote on July 14.

There are probably some people who are sitting out the job market because they make more in jobless aid than they would from working. But research has consistently found this to be a much smaller slice of the unemployed than Republicans typically acknowledge. A recent Morning Consult survey found that only 13% of unemployed Americans are jobless because benefits pay more. Other big reasons people aren’t working: child-care obligations, ongoing fears about Covid in the workplace, health limitations and lousy work options.

A June study by the Federal Reserve Bank of San Francisco found that only one worker out of seven is likely to turn down a job offer because of the current $300 per week federal benefit. That’s nearly the same portion as in the Morning Consult survey.

The federal benefit expires at the beginning of September, so if it is depressing hiring, that effect won’t last much longer. And some recipients who lost benefits will get them back. After cancelling the benefit, Maryland and Indiana reinstated it in the wake of lawsuits. Similar suits are pending in Texas and Ohio, which could force the reinstatement of federal jobless aid there. Those GOP governors will probably still claim they’ve helped businesses recover by nudging people back to work. Not really. 

Rick Newman is the author of four books, including "Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman. You can also send confidential tips, and click here to get Rick’s stories by email.

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