There’s a simple solution for the labor shortage: raising the minimum wage, a former Obama economist says

McDonald's fight for $15 wage
An employee of McDonald’s protests outside a branch restaurant for a raise in their minimum wage to $15 an hour, in Fort Lauderdale on May 19, 2021.

  • The economy is reopening but millions are still jobless as openings sit at record highs.
  • In response to this ‘labor shortage,’ 25 GOP-led states are ending federal unemployment benefits early.
  • Ex-Obama administration economist Heidi Shierholz says the minimum wage should go up instead.
  • See more stories on Insider’s business page.

Everywhere you look in the economy, there seems to be a shortage. The important things missing from shelves can be explained by factors like backed-up supply chains and a shipping crisis.

But another shortage that’s emerged – with increasing prominence as America’s recovery continues its long and winding path – is labor. Millions of workers are still out of work, even though businesses are reopening and want to hire.

One solution has to do with wages, and simply whether they’re enough to get people to do certain jobs after a pandemic. May’s jobs report showed wages on the rise for leisure and hospitality workers, but also showed workers quitting at the fastest rate documented in 20 years. While they saw significant pay jumps – by 7.2% from January to May – that only brought average hourly earnings up to $15.68.

“The wage growth that we’ve seen, say in leisure and hospitality, over the recent months, it’s so little more than just getting those wages in that industry back to where they would have been if COVID hadn’t happened,” Heidi Shierholz, the director of policy at the left-leaning Economic Policy Institute, told Insider. She said talk that such workers are getting more leverage may be “overstated,” and it probably won’t be sustained or permanent.

GOP governors in 25 states have decided that it’s too much leverage anyway, and that federal unemployment benefits in place for much of the pandemic have run their course. They’ve moved to end them months before their September expiration in President Joe Biden’s stimulus. It’s a decision that JPMorgan said is “tied to politics, not economics,” noting that many of these states didn’t have more job openings than jobless people.

Shierholz, a veteran of the Obama administration as chief economist at the Department of Labor, said broad reform is necessary in the labor market, and raising the minimum wage is a key aspect. That could both bring workers back and let higher wages stick, even after enhanced unemployment benefits taper off in September.

“That’s smart, and it’s good economics,” Shierholz said. She also said that things like passing the PRO Act – legislation that could both strengthen unions and offer greater protections to nonunionized workers – would aid recovery.

Shierholz previously told Insider that prematurely ending unemployment benefits could stifle the recovery, especially since workers receiving those benefits are putting that money back into the economy. She said that if the concern is higher benefits keeping workers from work, ending benefits may not be the best route.

“You could quote unquote ‘deal with that’ by cutting off unemployment insurance benefits, which has all these terrible implications” – like stifling recovery and leave millions without income – “or you could do something like raise the minimum wage,” she said.

Boosting wages to $15 may be helping with hiring and retention

Anecdotal evidence suggests that the businesses that did raise wages to $15 an hour succeeded in luring in new workers and boosting morale while cutting turnover. The Washington Post’s Eli Rosenberg spoke with several business owners who had done just that. Progressives have long wanted to raise the federal minimum wage to exactly that $15-per-hour number.

At the 5th Street Group – which owns several restaurants in Charlotte and Charleston – raising starting wages to $15 an hour, and enacting new tipping measures for staffers who aren’t normally tipped, helped the group go from being 50% to 60% staffed to nearly fully staffed in a matter of three weeks, according to the Post.

However, the likelihood of a $15 minimum wage being enacted anytime soon is low. Progressives led by Sen. Bernie Sanders pushed for its inclusion in President Joe Biden’s American Rescue Plan, but the measure ultimately didn’t survive under reconciliation rules. Eight Democrats voted against it, signaling even party-line support was not quite there. Talks on what, exactly, a minimum wage hike should be have also stalled recently.

The federal minimum wage is still $7.25. Although the above map shows that many states have opted to increase the minimum beyond that level, several remain at the federal rate.

Rhode Island recently passed a bill to raise the minimum wage to $15 by 2025, becoming the ninth state to pass a $15 minimum wage.

“Take a look at nationally – right now, states that are taking away the unemployment benefit of $300,” Gov. Dan McKee said in a press conference after signing the minimum wage bill into law. “Those states are at $7.25 cents an hour. So Rhode Island is a leader on this.”

But while raising the minimum wage might be key to an equitable recovery, according to Shierholz, it doesn’t look like the proposition is going anywhere anytime soon – even if it could help solve the labor shortage that’s holding back a full economic recovery.

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Four states cut off federal unemployment benefits Saturday – and the White House is very unlikely to step in to prevent the loss of stimulus aid

unemployment insurance weekly benefits stimulus checks recession job losses coronavirus pandemic
  • Four states are cutting off stimulus jobless aid on Saturday.
  • The cuts in Mississippi, Missouri, Alaska, and Iowa yanks aid from 340,000 workers.
  • The Biden administration is very unlikely to step in and prevent the unemployment aid losses.
  • See more stories on Insider’s business page.

For nearly 340,000 workers on Saturday, a steady flow of federal assistance will abruptly end.

Mississippi, Missouri, Alaska, and Iowa are the first four Republican-led states to scrap their federal unemployment insurance programs. They include the $300 federal supplement to unemployment checks, along with a pair of federal programs that expanded government assistance to gig-workers, freelancers, and the long-term unemployed during the COVID-19 pandemic.

No extra federal assistance will be going out the door in those states after this weekend. That means the level of wage replacement with regular unemployment aid will not amount to half of workers’ past income, per data from Andrew Stettner, a senior fellow and jobless policy expert at the left-leaning Century Foundation.

Some 22 million US jobs were lost last year because of the pandemic, many of them low-wage positions.

Twenty-five GOP-led states are pulling the plug on unemployment insurance programs over the summer, imperiling aid for nearly four million people, according to Stettner. Republican governors argue that the federal aid is keeping people from re-entering the workforce, slowing the economic recovery.

“It has become clear to me that we cannot have a full economic recovery until we get the thousands of available jobs in our state filled,” Mississippi Gov. Tate Reeves said last month.

The unemployment aid was extended until early September under President Joe Biden’s coronavirus relief law enacted three months ago. But many employers and Republicans stepped up their complaints about worker shortages, particularly in the leisure and hospitality sector, though those sectors added jobs in the past two months.

Biden appears to have demonstrated some sensitivity to the criticisms. The president said last week that it “makes sense” for federal unemployment aid to expire on Labor Day. Then White House press secretary Jen Psaki said Republican governors have “every right” to cancel the administration’s jobless aid programs.

Sen. Bernie Sanders, along with some economic experts, argue that the government has a legal obligation to step in and distribute aid to at least gig workers through the Pandemic Unemployment Assistance program. But the Labor Department – which administers the program – has concluded it is unable to do much about it.

Some Democrats in Congress have been fiercely critical of the GOP moves.

“No one should face financial ruin for living in states run by Republicans,” Sen. Ron Wyden of Oregon said in a statement last month. He told Politico recently he was eyeing a new bill to address the situation, though such a plan faces an uphill climb in the evenly-divided Senate.

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Expiring unemployment benefits will boost job growth by over 150,000 in July and over 400,000 in September, Goldman says

A "now hiring" sign hangs in front of a Popeyes location
Businesses across the leisure and hospitality industry are trying to staff up as the economy reopens, but they’re having a hard time getting people to come work for them.

  • 25 GOP-led states are ending $300 weekly unemployment benefits early to get people back to work.
  • Goldman Sachs said it will boost hiring by over 150,000 in July and 400,000 in September.
  • BofA found the benefits are higher than average leisure and hospitality wages in those states.
  • See more stories on Insider’s business page.

Following an April jobs report that fell significantly short of expectations, 25 GOP-led states announced they would be ending unemployment benefits early to incentivize people to get back to work. Both Bank of America and Goldman Sachs partially agreed that doing so will ease the labor shortage, with Goldman projecting a resultant spur to hiring in the coming months.

Goldman’s Joseph Briggs wrote in a Friday note that the 25 states opting out of President Joe Biden’s $300 weekly unemployment benefits will boost job growth by 150,000 in July and over 400,000 in September.

Briggs cautioned that these job gains estimates are “highly uncertain” and “the peak monthly growth impact could exceed 800k if workers are as sensitive to generous benefits as prior academic studies estimate, or be as low as 100k if benefit reductions only modestly increase workers’ willingness to return to work.” 

Briggs noted that the states ending the benefits early account for only 29% of total outstanding job losses since the start of the pandemic, partly because those states imposed fewer economic restrictions during the past year, and the majority of outstanding job losses are in the states that haven’t changed reemployment incentives.

Goldman Sachs chart showing how expiring unemployment benefits could boost hiring in the coming months.
Goldman Sachs: UI benefit expirations could significantly boost hiring in the coming months, although the size of the impact is highly uncertain.

Given that the majority of job losses are in states that are not ending the benefits early, labor supply headwinds will stay in place until September, Briggs said, and since the earliest states aren’t ending benefits until after the June employment report reference period, the effect on official employment measures won’t be fully visible until the July report.

Goldman continues to expect the unemployment rate to fall to 4% by the end of the year.

Bank of America Research said states are ending unemployment benefits early in large part because the benefits are higher than leisure and hospitality wages.

BofA economist Stephen Juneau wrote in a Friday note that the benefits exceed the average weekly earnings for leisure and hospitality workers in all 25 of the states that are moving to cancel them, while as of April 2021, employment in that sector is down about 1 million from February 2020.

“Therefore, opting out of the $300/week added benefit could be enough to nudge unemployed persons back into the work force, alleviating some of the labor supply shortages, and helping to spur job growth over the coming months,” Juneau wrote.

Three charts from Bank of America: The first chart shows weekly UI payments compared to average leisure wages, the second chart shows average hourly leisure earnings, and the third chart shows a personal savings outlook.
Average weekly UI payments vs. average weekly leisure and hospitality earnings, via BofA Research.

Juneau also cited the growth in leisure and hospitality wages over the past few months and said that if those wages continue to rise, the incentive to stay on unemployment insurance would be reduced.

Insider previously reported that companies like Target, Starbucks, and McDonald’s have raised their minimum wages to help remedy the labor shortage and attract more workers to get back into the labor force, given that holding out for higher wages, along with pandemic health concerns, have been discouraging the return to work.

But while Juneau said ending the benefits early will help with hiring, Insider reported last week that the cuts have not gone into effect yet, and payrolls still sharply increased in May, suggesting the benefits are not as big a disincentive as Republicans argue.

Democrats have also disagreed that the benefits are a disincentive, even calling for continued unemployment benefits tied to economic activity beyond the pandemic. Vermont Sen. Bernie Sanders wrote on Twitter in April that we “don’t need to end $300 a week in emergency unemployment benefits that workers desperately need.”

But continued unemployment benefits are unlikely. Biden said in a speech last week that while the benefits have been effective thus far, “it makes sense” for them to expire in September.

“A temporary boost in unemployment benefits that we enacted helped people who lost their jobs through no fault of their own, and who still may be in the process of getting vaccinated,” the president said in brief remarks following the May jobs report. “But it’s going to expire in 90 days – it makes sense it expires in 90 days.”

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As the White House lauds falling unemployment claims, a former Obama economist says benefits must stay in place to ensure a full recovery

Now Hiring man with mask
A man wearing a mask walks past a “now hiring” sign on Melrose Avenue amid the coronavirus pandemic on April 22, 2021 in Los Angeles, California.

  • Jobless claims just dipped again, reaching a new pandemic-era low.
  • The White House is lauding signs of recovery, but prematurely ending unemployment could hurt that.
  • One economic expert said that ending benefits now would hurt both workers and recovery prospects.
  • See more stories on Insider’s business page.

Thursday brought two big numbers for the American economy: Another significant rise in inflation, and the lowest level of weekly jobless claims since the onset of the pandemic.

They show the paradox that is the current economic recovery. Goods are still getting pricier – although inflation shows signs of cooling down soon – and fewer people are losing work and remaining on unemployment. The White House says its recovery plan is working.

In a statement, Brian Deese, the director of the National Economic Council, said the recent economic data “reinforce that US fiscal policy and vaccination progress are positioning the economy for growth and job creation.” Deese also noted that the jobless claims come “as independent analysts project that economic growth in the United States will outpace growth for our peer nations and reach the fastest pace in nearly four decades.”

On Wednesday, a day ahead of the jobless data release, Heidi Shierholz, the director of policy at the left-leaning Economic Policy Institute and an Obama Labor Department veteran, broadly agreed with Deese.

“Things are getting back to normal,” Shierholz told Insider. “I think the key is we don’t want to make drastic policy changes at this point.” When it comes to relief and recovery measures for this recession, “we are doing it so right,” she said. But she warned that could still change.

Shierholz said she expects to see a quick bounceback and strong recovery, but changing course could threaten that. “If we start pulling back with those measures now, we’re going to just cut that off at the knees,” she said.

One thing that could weaken the recovery is the move to prematurely end federal unemployment benefits in 25 states, where GOP governors cited labor shortages as a reason to pull the plug on benefits and get workers back. Both the jobless claims and May’s jobs report show the recovery happening even with enhanced benefits. As Insider’s Ayelet Sheffey reported, payrolls saw a strong increase even as benefits remained intact.

The decision to prematurely end unemployment benefits will impact about 4 million workers, according to an estimate from Andrew Stettner at the liberal-leaning Century Foundation. Some of those workers, who receive benefits through federal programs that expanded both the eligibility and duration of benefits, will lose all benefits – not just the additional $300 weekly.

Some advocates and politicians have argued that the Labor Department is legally required to continue to pay out Pandemic Unemployment Assistance (PUA), which expanded eligibility for benefits to gig workers, among others. However, the Department of Labor has concluded it’s probably unable to pay those out.

The White House has signaled acceptance for benefits ending. Last week, White House Press Secretary Jen Psaki said the GOP-led states that are cutting off benefits “have every right” to do so.

Shierholz said many people that have been unable to find work or are unable to return due to health concerns. Cutting off benefits would also cut off the money those people have been spending in the economy.

“Cutting them off too early deeply unnecessarily increases human suffering,” she said. “It also weakens the recovery.”

Read the original article on Business Insider

$39 billion of stimulus unemployment benefits were likely wasted by inefficient state governments, watchdog finds

unemployment insurance weekly benefits stimulus checks recession job losses coronavirus pandemic
Carlos Ponce joins a protest in in Miami Springs, Florida, asking senators to continue unemployment benefits past July 31, 2020.

  • The Office of the Inspector General estimated $39 billion in unemployment benefits from the CARES Act were wasted.
  • The watchdog cited insufficient staffing and antiquated technologies that failed to detect improper payments.
  • GOP-led stated are ending Biden’s $300 weekly benefits early to get people back to work.
  • See more stories on Insider’s business page.

Under the CARES Act in March, Americans received $600 weekly unemployment benefits to help offset the financial strain brought on by the pandemic. But a recent report from the federal watchdog found states had difficulty distributing those benefits and likely ran up $39 billion in improper payments.

On May 28, the Office of the Inspector General released a report analyzing how states implemented key unemployment insurance programs from the CARES Act, including Pandemic Unemployment Assistance (PUA), Pandemic Emergency Unemployment Compensation (PEUC), and Federal Pandemic Unemployment Compensation (FPUC).

The report noted that since 2008, unemployment benefits programs have run an improper payment rate of 10%, and if that continues, “at least $39.2 billion in CARES Act funds will have been improperly paid and wasted, instead of benefitting those for whom the new UI [unemployment insurance] programs were intended.”

It also found that the Labor Department’s oversight did not ensure states implemented the programs and paid benefits promptly. “As a result, unemployed individuals experienced financial hardships due to delays in receiving benefits,” the report said. “As of January 2, 2021, we estimated at least $39.2 billion in improper payments, including fraud, were at risk of not being detected and recovered, and could have been put to better use.”

Here are the main findings of the report:

  • From the passage of the CARES Act to to the first payment claim, it took on average 50 days for PEUC, 38 days for PUA, and 25 days for FPUC to be distributed;
  • 40% of states did not perform required crossmatches to detect improper payments;
  • 42 states did not report overpayments, and
  • Of the states that did report, the total amount reported was understated by 89%.

The watchdog said the problems with the program were likely due to insufficient staffing levels and antiquated technology that hindered detection of fraudulent payments.

While this report analyzed unemployment benefits distribution under President Donald Trump, it comes at a time when an increasing number of GOP-led states are ending President Joe Biden’s $300 weekly benefits early following a weak April jobs report, with the argument that the benefits disincentivize work.

However, Insider reported last week that May saw an increase in payrolls, and that data was collected before the benefit cuts went into effect, suggesting they might not be discouraging work as much as Republicans argue.

Some Democrats are even pushing for continued unemployment benefits tied to economic activity beyond the pandemic, although Biden said in a speech on Friday that while the benefits have been effective thus far, “it makes sense” for them to expire in September.

“A temporary boost in unemployment benefits that we enacted helped people who lost their jobs through no fault of their own, and who still may be in the process of getting vaccinated,” the president said in brief remarks following the May jobs report. “But it’s going to expire in 90 days – it makes sense it expires in 90 days.”

Read the original article on Business Insider

25 states are moving to end unemployment benefits. 15 of them have lower than average vaccination rates.

sears vaccine
People pass walk by the Vaccination center at the Townsquare Mall in Rockaway, New Jersey on January 8, 2021. – Governor Murphy toured a vaccine “mega” site at a former Sears store in Morris County, where health officials hope to vaccinate more than 2,000 people per day in coming weeks once the vaccine arrives.

  • 25 states are cutting off extra federal unemployment benefits early.
  • That decision will impact about four million workers, and cause many to lose benefits completely.
  • Almost every state cutting benefits is still below pre-pandemic employment.
  • See more stories on Insider’s business page.

Half of all states in America are ending their participation in federal unemployment benefits early, leaving millions of workers with greatly reduced benefits – or no benefits at all.

Twenty-three of these states are still below pre-pandemic employment, while 15 have lower than average vaccination rates. That means that workers being pushed back into the workplace – especially in the service industry – may find themselves exposed to more unvaccinated customers.

It also means that more workers in those states are still actively looking for, but not finding, work, indicating that those states may not actually be ready to pull the plug on increased benefits.

Even so, at least four million workers stand to see their benefits slashed or cut completely, according to an estimate from Andrew Stettner at the left-leaning Century Foundation. Overall, according to Stettner, 2.1 million workers on Pandemic Unemployment Assistance (PUA) and Pandemic Emergency Unemployment Compensation (PEUC) – both federal programs – will completely lose their benefits.

People receiving those include newly eligible gig workers, who have not traditionally been able to receive benefits, and those who have been unemployed long enough to exhaust regular state benefits.

Governors have cited higher unemployment benefits as a disincentive for workers returning, although the story may be more complex. Some workers are rethinking what they want out of work completely, while others have found their industries irrevocably altered by the pandemic’s economic devastation.

All of the states moving to end their unemployment benefits are led by GOP governors. An economic research team at JP Morgan said in a note that it “looks like politics, rather than economics, is driving early decisions to end these programs.”

But one reason that workers may not be returning is continued COVID safety concerns. People over 55 and those with young children have been primary drivers of the drop in the labor force, according to a research note from UBS economists led by Andrew Dubinsky.

Vaccination rates are low in many of the states cutting benefits

In states moving to end their participation in federal unemployment benefits early, the population tends to be less vaccinated. Four of the five states with vaccination rates under 40% are opting out of federal UI.

Vaccination rates are lower in the states that are cutting benefits. Using CDC data from May 27, the average rate among those cutting states is 45.95%, while the rate is 55.14% among states continuing these benefits.

The following map shows the share of adults, aged 18 and older, in each state that are fully vaccinated as of May 27. States marked with an “X” are those cutting federal unemployment benefits.

Louisiana is the only one of the five states with vaccination rates of 40% or lower not cutting benefits. Only four of the 25 states cutting federal unemployment benefits have rates of at least 55%, while 14 states not cutting benefits have rates of at least 55%.

Some states ending benefits are close to pre-pandemic employment

Almost every state is still below pre-pandemic employment, but those cutting benefits seem to be closer to employment levels seen in Feburuary 2020.

The following map shows the percent change in employment from February 2020 to April 2021. States marked with an “X” are those cutting federal unemployment benefits.

Some of the largest employment gaps are in states not cutting benefits, such as Hawaii, New York, and Nevada. Twelve states not cutting benefits are at least 7.0% below their pre-pandemic employment. Alaska has the highest percent decline among the states cutting benefits at -6.9%, followed by Florida at -5.5%.

Some states cutting benefits seem to be closer to getting back to February 2020 employment, such as Montana and South Dakota. These two states are less than 2% below pre-pandemic employment as of April 2021. Utah and Idaho, two states that are soon cutting benefits, are the only states above pre-pandemic employment at 1.2% and 1.5% respectively.

Texas has an unemployment rate above the current national rate and is 3.4% below pre-pandemic employment as of April 2021. On May 17, Gov. Greg Abbott made the announcement that benefits would end come June 26. Texas is the largest state to announce an early termination of federal unemployment benefits.

Dina Jones, 54, is one of those unemployed Texans. She lives in the Houston metropolitan area, and is currently receiving PUA. That means that, come June 26, she will lose all of her benefits.

“We’re scrambling faster to try to find a job,” Jones told Insider, saying she’s overlooked for roles every single week. She added: “I do agree that we should all go to work and we should not be collecting from the government, but he [Abbott] dropped it so fast. People are going to be scrambling.”

A report from the left-leaning Economic Policy Institute (EPI) found that “nearly all the states cutting UI still have significantly fewer jobs than before the pandemic.” In Texas, for instance, nearly one million workers are “officially unemployed,” meaning that they’re actively looking for work but haven’t had luck yet.

Jones is one of them. She said she’s tired of being home all the time, and wants to work. But what stings is hearing Abbott say that that there are plenty of jobs out there, especially since they pay significantly lower than what she used to earn. She said she’s still getting rejected from jobs that pay half of her prior wage.

“What are you telling me, Governor Abbott, that I’m supposed to go to be a cashier?” she said. If she has to go take one of those lower-paying jobs, “I will come home and cry every day of the rest of my life.”

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The GOP said enhanced unemployment benefits were stopping folks from taking jobs. The US saw sharp payroll growth last month anyway.

A help wanted sign is posted at a taco stand in Solana Beach, California, U.S., July 17, 2017.   REUTERS/Mike Blake
  • Republicans nationwide are ending unemployment benefits early under the argument they disincentivize returns to work.
  • While the cuts haven’t yet gone into effect, payrolls still sharply increased in May, while the unemployment rate declined more than expected.
  • A range in factors could be contributing to the labor shortage, including pandemic health concerns.
  • See more stories on Insider’s business page.

Republicans in 25 states are cutting enhanced unemployment benefits early under the argument that the additional measures discourage people from re-entering the workforce.

But the May jobs report released on Friday, which saw 559,000 payrolls added – a sharp increase from April – and a bigger-than-expected drop in the unemployment rate, suggests the labor-market recovery is accelerating just fine on its own.

After all, none of the GOP-backed enhanced-UI cuts have even gone into effect yet.

Calls from the GOP to cut enhanced UI grew louder after April’s jobs report, which saw a shocking drop in new payroll additions that defied all economist forecasts. Upon seeing that, Republicans blamed the enhanced measures for disincentivizing work, which prompted a growing number of GOP-led states to end them.

On Friday, despite the acceleration of payroll additions from April’s numbers and lower-than-expected unemployment, some members of the GOP were still quick to brand the jobs report as a miss.

Republicans and businesspeople have been critizing expanded UI – which was inserted into March 2020’s CARES Act by Democrats in the House – since the pandemic first hit in 2020. The US Chamber of Commerce quickly called for its cancellation in the wake of the April jobs numbers.

But Democrats have disagreed with that assessment. Sen. Bernie Sanders wrote on Twitter in April that we “don’t need to end $300 a week in emergency unemployment benefits that workers desperately need. We need to end starvation wages in America. If $300 a week is preventing employers from hiring low-wage workers there’s a simple solution: Raise your wages. Pay decent benefits.”

Some Democrats are even pushing for continued unemployment benefits tied to economic activity beyond the pandemic, but Biden said in a speech on Friday that while the benefits have been effective thus far, “it makes sense” for them to expire in September.

“A temporary boost in unemployment benefits that we enacted helped people who lost their jobs through no fault of their own, and who still may be in the process of getting vaccinated,” the president said in brief remarks following the May jobs report. “But it’s going to expire in 90 days – it makes sense it expires in 90 days.”

And while Republicans largely blame unemployment benefits for discouraging work, a JPMorgan note last week wrote that ending the benefits early is “tied to politics, not economics,” and Insider previously reported that there are a range of factors that could be preventing people from returning to work, like COVID-related concerns and lack of childcare.

So given that unemployment benefits haven’t ended yet, and payrolls were still added in May, the benefits might not be as big a disincentive as Republicans think, and experts are optimistic that the labor shortage should fade by the fall.

“The supply-demand mismatches in the labor market are likely to be temporary, and I expect to see further progress on employment in coming months,” the Federal Reserve governor Lael Brainard said in a Tuesday speech.

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Half of all US states are scrapping stimulus-era jobless benefits, cutting off 4 million workers from federal aid

GettyImages protest dc covid-19 stimulus relief
Demonstrators rally near the Capitol Hill residence of Senate Majority Leader Mitch McConnell, R-Ky., to call for the extension of unemployment benefits on July 22.

  • 25 states are pulling the plug on federal jobless benefits enacted during the earliest days of the pandemic.
  • The GOP-run states are halting the flow of jobless aid to 4 million jobless people.
  • A top Democrat suggested he was drafting a plan for the federal government to step in and provide aid.
  • See more stories on Insider’s business page.

Half of all US states are moving to scrap federal unemployment programs over the summer.

Twenty-five GOP-run states are pulling the plug on federal unemployment benefits several months before their scheduled termination in September. Republican governors and lawmakers argue the $300 weekly jobless aid is keeping people from searching for jobs.

Maryland was the latest on Tuesday. Gov. Larry Hogan announced the state would end its participation in federal benefits effective July 3. The coronavirus relief programs were set up in the earliest days of the pandemic last year during a surge in unemployment.

“While these federal programs provided important temporary relief, vaccines and jobs are now in good supply,” Hogan said in a statement. “And we have a critical problem where businesses across our state are trying to hire more people, but many are facing severe worker shortages.”

The labor story is probably a bit more complicated than that. Everything from COVID fears to childcare to a mismatch between the workers seeking roles and open jobs is likely contributing to the current situation.

A JPMorgan note last week said politics was playing a major factor in moves to halt the stimulus relief measures. “It therefore looks like politics, rather than economics, is driving early decisions to end these programs,” the bank said.

Regardless of the factors, though, the decision to prematurely end federal benefits will impact 4 million workers, according to an estimate from Andrew Stettner at the liberal-leaning Century Foundation.

And a good chunk of those workers will lose their benefits completely. That’s because they’re on Pandemic Unemployment Assistance (PUA) and Pandemic Emergency Unemployment Compensation (PEUC), two federal programs that expanded the eligibility for benefits and how long workers could receive them.

One of those workers is Susan Hardy, 70. She lives in West Virginia, where federal benefits will end on June 19 – just a little over two weeks away. Hardy is a longtime independent contractor working in gas and oil title research, and has been receiving PUA benefits since she was laid off from a project.

Susan Hardy
Susan Hardy.

“I sent messages to the governor begging him not to do that. At least let us go till September,” Hardy said. “It looks like my job, my work, could open back up a little bit in October, or maybe by November. At least going to September would allow me to get through more of the difficult periods before hopefully things will open up.”

But the Labor Department has recently concluded it cannot step in to prevent the loss of benefits for unemployed workers. Chair of the Senate Finance Committee Ron Wyden told Politico in an interview published Wednesday he was eyeing a new plan for the government to intervene.

“If it takes changing the law, I’ll change the law,” he said. A spokesperson for the Senate Finance Committee declined to comment further.

In the meantime, workers like Hardy – who said she made less on unemployment than in her prior work – are facing down an unemployment cliff in the coming weeks.

“Our work has not opened up. I mean, they want to say, go to work, go to work, go to work,” Hardy said. “But if your work is not there, you cannot go to work. And we need those – I realize it’s only till September, it’s not that much longer – but September definitely beats June.”

Are you unemployed and have a story you want to share? Contact these reporters at jkaplan@insider.com and jzeballos@insider.com.

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The truth behind America’s labor shortage is we’re not ready to rethink work

hiring sign coronavirus
  • Roughly 10 million Americans are unemployed, yet hiring slowed sharply in April as the US reopened.
  • The labor-shortage trend has less to do with too few workers and more to do with rethinking labor.
  • The pandemic and stimulus led Americans to reevaluate work – and demand higher pay for it.
  • See more stories on Insider’s business page.

Workers were tired before the pandemic. Now they’re reaching a breaking point.

“These guys are just dumbasses if they actually think that the UI is the problem and not the wage,” Matt Mies, an unemployed 28-year-old, told Insider.

He was referring to the dozens of Republican governors who have cited a so-called labor shortage, which they’ve blamed on the “disincentive” created by an expanded federal unemployment benefit from President Joe Biden’s stimulus package. The leaders, who govern nearly half of the 50 states, have moved to cancel the benefit early, stripping it from millions within weeks.

Economists had largely expected jobless Americans would rush back to work as vaccines rolled out and the country reopened, but that all changed on May 7, when the government’s monthly payrolls report showed much-weaker-than-expected job gains of 266,000 in April. That seemed to confirm the labor shortage was real.

Mies, who was a ground-crew worker in Hollywood before the pandemic, said most jobs like his had moved out of the area, but that’s not the problem. “I just think that UI has just at least fixed everyone’s brain enough to see how f—ed up the wages are,” he said.

He was one of several unemployed Americans Insider spoke with who said the “labor shortage” was an opportunity for America to rethink what work looks like. They said they weren’t looking to go back to the way things were, and millions more may agree with them – about 10 million Americans are unemployed, compared with right before the pandemic.

Some jobless Americans say it’s as simple as wanting higher pay after years of declining buying power. For others, expensive childcare and health issues are placing work lower on their list of priorities. Americans are also looking for better labor conditions after working from home sparked a societywide reassessment.

The president wants this rethink to happen. “Instead of workers competing with each other for jobs that are scarce, we want employers to compete with each other to attract workers,” President Joe Biden said in a speech Thursday. “That kind of competition in the market doesn’t just give workers more ability to earn a higher wage, it gives them the power and demand to be treated with dignity and respect in the workplace.”

But the opposite view is that work should and will go back to what it was in 2019, and the wages on offer aren’t up for negotiation.

“What has happened in our society, where a paycheck isn’t enough incentive to go to work?” Republican Sen. Ron Johnson of Wisconsin told Insider. “We supplanted that incentive with the incentive to stay home, and we need to end that incentive.”

Johnson also dismissed the idea that businesses needed to raise wages, saying, “Why would anybody need an additional incentive to go to work?

“The incentives have always been there: to take a paycheck, to have the dignity of earning your own success and providing for your family.”

Those incentives may no longer be attractive enough. Economic data suggested that while demand for workers was robust, Americans didn’t seek out work as experts had anticipated they would. Job openings soared to a record-high 8.1 million in March as more businesses looked to hire through reopening. The food-services and accommodation sectors – two of those hit hardest by the pandemic and related lockdowns – added the most openings. Yet the April jobs numbers showed little of that demand being serviced.

Work needs a rethink, but the country isn’t ready for it.

Pay was too low well before COVID-19 struck

For decades, the typical American’s wage growth was weak by historical standards. The situation was dire even before the global financial crisis and the slow subsequent recovery, which lagged expectations and left millions unemployed for years. Economic growth stagnated, and below-target inflation hinted the country was saddled with consistently weak demand.

Then the virus hit.

Low-wage workers were sent home by the pandemic, and if they were able to successfully navigate the unemployment system, they had a steady income, no inconsistent schedules, and life away from occasionally demanding customers. Thank the US government’s massive stimulus spending – roughly $5 trillion – for that big reset.

There is strong upward pressure for wage for the first time in decades. Federal Reserve Chair Jerome Powell said ahead of the April jobs report that wage growth would be a telling sign of a “really tight labor market.” And grow, wages did. Average hourly earnings rose $0.21 in April alone, roughly doubling the typical one-month increases from before the health crisis.

“Everybody should get a living wage,” Scott Heide, an unemployed 35-year-old in Florida, told Insider. He said people getting more money staying home than working was “outrageous,” but not for the reasons that labor-shortage critics cite. “I think if employers paid their employees a living wage, that would make a huge difference,” he said.

Scott Heide
Scott Heide.

Heide was referring to what economists call the reservation wage, which tracks the wage levels at which Americans would take jobs. The reservation wage for workers without a college degree jumped 26% year over year in March, according to the Federal Reserve Bank of New York. That compares with average annual growth of about 2% over the past six years. The wage now comes out to $29.56 an hour, compared with an hourly rate of $23.45 just one year prior.

The data made it clear: Americans wanted better compensation for their work, and they were willing to wait for it.

It’s not just low wages dragging on the labor market’s recovery. UBS says childcare and COVID-19 fears from older people are more to blame for labor shortages than enhanced unemployment. Experts previously told Insider that it was a new phase of recovery, where the need for parents to have a safe place to drop off their children is becoming even more clear.

Karen Lucas, a 53-year-old single mother in Pennsylvania who is unemployed, said unemployment benefits were addressing childcare costs and that’s an important reason people have stayed out of the workforce.

Karen Lucas
Karen Lucas.

“If my children were, let’s say, 5 years old – thankfully they’re 16, so they’re independent – I would not be able to work,” she said. Twelve years ago, she said, she paid over $1,600 a month for her children’s care.

When it comes to those parents opting to stay home, “I can’t fault them. I don’t think it’s a bad decision. If I were a parent with 5-year-olds, you better believe I would be doing that,” she said.

She said the situation showed the need for businesses to provide childcare or childcare incentives for their employees.

The unemployment benefit changed how some Americans view work

The only thing Mies misses about his old Hollywood job is the paycheck.

He’s still working as a technical director for a nonprofit theater organization that serves people with disabilities, which he said he’s always enjoyed more than his other work. During the pandemic, he was able to get a small paycheck from them – he hadn’t been paid before then – but was able to remain on unemployment. At its peak, he said he made about as much on unemployment-insurance benefits as he had before.

That made him realize he was working himself “to the bone,” he said, adding that he wanted to return to work, but not hard labor for long hours.

Even after the weekly federal supplement shrank to $300 from $600, the aid program was still competitive with low-paying jobs across the country. The combination of state UI and the federal boost surpassed the average wages of Montana, North Dakota, and Wyoming, Insider calculated, and in the rest of the US, unemployment benefits replaced an average of 76% of states’ average wages.

While UI might not deter Americans from work, it encouraged many to seek more rewarding jobs – or, at least, work in different fields. In February, 66% of unemployed Americans in a Pew Research Center survey said they had “seriously considered changing their occupation or field of work.”

Separately, Insider’s Mary Meisenzahl reported on retail workers leveraging the labor situation to leave their old jobs – and the drain that came with them – for better-paying positions. The drain was likely extreme. Research from the advocacy group One Fair Wage found that female tipped workers experienced more harassment and lower tips during the pandemic.

Wage hikes at large-scale employers, from Amazon to Chipotle, suggest businesses faced at least some pressure from the government benefit, and from a large first mover on raising wages, the tech giant Amazon.

Larger structural shifts and a September ‘fiscal cliff’

Other sectors, like academia, may see more of a structural shift on the other side of the pandemic. In the past year, higher education lost an unprecedented 650,000 jobs, Dan Bauman at The Chronicle of Higher Education reported, citing estimates from the Labor Department. That could represent a major sector emerging from the pandemic permanently disjointed – with a lot of collateral damage.

Jennifer, whose last name is known to Insider but withheld for privacy reasons, fears she is one example. She’s 42 and lives in southern Virginia. After finishing her Ph.D., and starting a new job in January 2020, she felt she was on her way up in the world. Then the pandemic hit, and her job was gone in March.

It took months to finally get the call she needed to receive her unemployment benefits. She said she had been surviving for six months off credit cards.

Throughout her time on unemployment, she said, “there’s been no highs, with quite a few lows.” About every three weeks, she panics about her situation, she said, “because I accidentally take a bird’s-eye view of my life and it’s terrifying.”

She said she was “frozen in time.” Every day, she wakes up, logs on to her computer, and searches for at least two jobs that she can apply to.

job application

“I manage to wake up every single day saying it could be today, could be today. I could get that email. I could get that phone call. It could be today.”

Such validation needs to arrive in the next three months at the latest. Even in the 27 states that haven’t prematurely ended the federal UI benefit, the boost is set to lapse in September. That includes programs like Pandemic Unemployment Assistance and Pandemic Emergency Unemployment Compensation, which extended eligibility for benefits and the number of weeks people could receive them. When both of those vanish, their recipients will no longer have any UI.

Payment freezes, such as the federal eviction moratorium and a pause to student-loan payments, will also expire in the fall. This spate of deadlines has been referred to as a “fiscal cliff,” with millions of Americans on the brink of losing several forms of economic relief.

Jennifer’s experience shows that work may not be rethought for everyone who needs it. “The last thing I want is sympathy,” she said. “I’m just so angry. I need someone to validate that I’m a human being.”

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Biden’s budget will reportedly cost $6 trillion while running a $1.3 trillion deficit over a decade

Joe Biden
President Joe Biden.

  • Biden’s budget will propose $6 trillion for fiscal year 2022, according to a New York Times report.
  • It will also run a $1.3 trillion deficit over a decade, which will be offset by corporate tax hikes.
  • This will mainly fund Biden’s infrastructure plan while leaving out campaign promises, like canceling student debt.
  • See more stories on Insider’s business page.

President Joe Biden’s first budget request will officially be unveiled on Friday, and the New York Times found that it will propose $6 trillion to help fund his major infrastructure spending plans.

On Thursday, the Times reported that the $6 trillion budget proposal for fiscal year 2022 will be accompanied by deficits of $1.3 trillion over the next decade, and it will also call for total spending to increase to $8.2 billion by 2031, according to obtained documents.

This would take the US to its highest federal spending levels since World War II, and it comes as Biden is lobbying for his $4 trillion infrastructure plan, which not only includes rebuilding physical infrastructure, but climate change initiatives and efforts to boost the middle class, as well. This budget proposal will help him do that.

The Times added that under Biden’s budget proposal, the federal deficit would hit $1.8 trillion in 2022, and it would recede slightly after that before growing to nearly $1.6 trillion by 2031. But his plans to fund infrastructure by corporate tax hikes and wealthy people would help shrink those deficits, despite Republicans firmly opposing those hikes.

Last week, Insider reported that issues that Biden campaigned on – like student debt forgiveness – will not be included in Friday’s budget proposal, based on information sources told The Washington Post, and health care promises, like lowering prescription drug costs, won’t be making the cut, either.

“The President’s budget will focus on advancing the historic legislative agenda he’s already put forward for this year,” Rob Friedlander, spokesman for the White House budget office, told the Post. “The budget won’t propose other new initiatives but will put together the full picture of how these proposals would advance economic growth and shared prosperity while also putting our country on a sound fiscal course.”

Biden also pledged to reform the unemployment insurance system when unveiling his American Families Plan, but that will reportedly not be in the budget, either. It will mainly focus on already proposed infrastructure investments, like education and climate change, and will likely not go too far beyond that for the time being.

However, this budget proposal requires congressional approval, so its fate rests at the hands of lawmakers. But given the course the infrastructure bill has taken so far, there will likely be disagreements on what will end up in the budget. For example, Democrats have been urging Biden to ditch negotiations with the GOP on infrastructure and pass a big spending bill while Republicans continue to counter Biden’s plan with a lower scope and size.

But Biden is still committed to bipartisanship, and whether his budget proposal gets bipartisan support remains to be seen.

White House Press Secretary Jen Psaki said last week that the negotiations were an art of a “different kind of a deal – a deal for the working people.”

Read the original article on Business Insider