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.
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.”
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.
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.
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.
“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.
“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.”
Almost half of all US states have decided to end their participation in federal unemployment benefits, setting up some workers to receive drastically reduced payments – and others without any federal relief coming through the door.
Twenty-four GOP-run states are moving to slash federal unemployment benefits within weeks, citing a so-called labor shortage and lack of hiring. Governors in those states are ending programs set up in the early in the pandemic, which added federal cash onto state unemployment checks and extended the weeks people were eligible for aid. Nebraska was the latest to pull the plug on all stimulus jobless aid programs, on Tuesday.
The measures will slash jobless aid from 4 million people, per an estimate from Andrew Stettner at the liberal-leaning Century Foundation. That projection means that nearly one in four of all Americans receiving unemployment are poised to experience some reduction in their benefits.
One of them is Scott Heide, a 35-year-old in Florida. His state’s governor, Ron DeSantis, announced this week that the state would be terminating its participation in the extra $300 in weekly federal benefits effective June 26.
Heide told Insider that he’s been on unemployment for almost a year. When he lost his job, he also lost his health insurance, and has had to pay over $800 a month for COBRA insurance since. He had to leave his apartment and move back in with his parents.
The original $600 supplement “really made a big difference,” he said, but that expired after just a few months. Then, Biden’s American Rescue Plan added in a $300 benefit. “That was like my lifeline” for paying bills, Heide said. But at a certain point he said he knew it was a “matter of time” before DeSantis went down the same road as other GOP governors.
“It’s just really tough because I’m trying to get a job, but it’s not that easy. And I feel like I’m being punished for no reason when it’s out of my control if somebody offers me a job. All I can do is apply,” Heide said.
Florida is an anomaly among the GOP states moving to end federal benefits in that it’s only stopping the additional $300 – for now, at least – and keeping in place programs that expand unemployment eligibility and the number of weeks recipients can access benefits.
In other states, about 2.1 million workers on those programs – Pandemic Unemployment Assistance (PUA) and Pandemic Emergency Unemployment Compensation (PEUC) – will lose their benefits entirely, per Stettner’s calculations.
Some advocates and politicians have said that Biden’s Labor Department has an obligation to step in and provide PUA benefits, arguing that it’s mandated under the CARES Act.
Sen. Bernie Sanders wrote a letter to Labor Secretary Marty Walsh pressing the Labor Department to continue paying out benefits on its own.
Other Democrats have called on the agency to continue exploring options without specifically urging them to distribute the aid.
“I think the administration should be looking under every rock, and every nook and cranny for ways to protect the vulnerable,” Wyden said in an interview on Tuesday. He suggested he was looking at “next steps.”
Yet it appears that the Biden administration won’t be able to prevent a lapse in unemployment aid in the GOP states. The Labor Department has concluded it’s probably unable to help pay out the benefits, an administration official told Insider last week, given that unemployment systems are administered as a federal and state partnership built on agreement from the states.
The Labor Department did not immediately respond to a request for comment.
“I think there is still going to be litigation on this topic,” Stettner told Insider. “The real legal question is whether DOL has the authority to force states to pay benefits or find a way to get them out themselves.”
Federal unemployment benefits doled out for more than a year are on the verge of lapsing for millions of Americans, but the reason why isn’t new.
As soon as April’s disappointing jobs report was released, critics – largely in the Republican Party – began blaming the boosted support measure for disincentivizing Americans from seeking work.
This disincentive theory dates back decades, and largely comes from a Reagan-era book that argued government-support programs were the reason the US economy was falling behind.
In his 1984 book “Losing Ground,” political scientist Charles Murray posited that social welfare leaves society worse off, as it leads participants to rely on handouts instead of encouraging them to climb the socioeconomic ladder.
That thesis has informed Republicans’ economic policy for nearly half a century and is rearing its head once again as GOP governors prematurely terminate federal unemployment benefits for millions. But analysis of Murray’s book shows such policy rests on morally suspect arguments and possibly does the US more harm than good.
But while the circumstances of the coronavirus recession and the 2021 reopening of the American economy are unique, the argument that the social safety net provides a “disincentive” to work is an old idea.
The viewpoint originated in 1976 when, during his first presidential campaign, President Ronald Reagan highlighted “welfare queens” as a new kind of fraudster plaguing the country. Reagan claimed that by slashing spending on programs like food stamps and welfare, he could run the government more efficiently and put poorer Americans to work.
“Losing Ground” was published the same month Reagan was elected to a second term in a landslide 1984 victory. America clearly liked Reaganomics and wanted more. It didn’t take long for Murray’s book to power even stricter anti-welfare policies.
The political scientist was, indirectly, at the helm of a new economic-policy framework. The New York Times soon deemed Murray’s work a “budget-cutters’ bible” that was used as a “philosophical base” throughout government agencies. Reductions to housing assistance, education, and programs like the Jobs Corps reflected Murray’s push to eradicate welfare spending.
The uneven reopening of the American economy shows the book’s ideas are paraded just as loudly today.
Following this month’s jobs report for April, Gov. Kim Reynolds of Iowa said the payments were “discouraging people from returning to work,” while Gov. Mark Gordon of Wyoming said that “incentivizing people not to work is just plain un-American.” Gov. Brad Little of Idaho said cutting the benefit was “based on a fundamental conservative principle.”
And in 36 states, policymakers are bulking up work-search requirements for UI recipients. President Joe Biden even implicitly accepted some of Murray’s ideology in comments following the jobs report, saying Americans receiving unemployment benefits “must take the job” if offered one.
Yet Murray’s argument – and its decades-long influence – rest in part on shaky and ethically questionable foundations.
Murray used Black men as a proxy for all poor Americans
Some of Murray’s observations hold water. The number of Americans below the poverty line has gradually increased since the late 1960s, and, around the 1980s, poor Americans were starting to drop out of the workforce.
Other arguments from Murray are less compelling. Murray noted that, as spending on social services ramped up in the 1970s, poor Americans stopped working as a result of the support programs. This, he said, is why the federal safety net should be abolished.
Murray’s argument leans heavily on the “latent poverty” statistic – individuals who are only above the poverty line due to government benefits – but ignores one of its critical drivers, according to a 1984 article in the Yale Law and Policy Review.
Additionally, the political scientist focused only on Black men aged 16 to 24 to gauge poor Americans’ attachment to employment over time. Murray ignores labor force participation among Black women, and also fails to address the structural forces that hinder economic development for racial minorities.
Using young Black men as a proxy for all poor Americans likely skewed rates of labor-force dropouts for reasons not acknowledged in Murray’s book, author and Yale Law School graduate Edward Mattison said.
To be sure, neither Murray nor Mattison could have predicted the coronavirus crisis and its economic fallout. Both would likely be shocked to discover Congress allocated some $5 trillion to fiscal stimulus, much of it passed on a bipartisan basis, while the Federal Reserve embarked on an unprecedented level of monetary easing.
As a post-pandemic economy emerges, Democrats have proposed overhauling UI programs to match the new attitude toward stimulus, with a larger benefit and minimum 26-week payment period. Such proposals would mark a major shift in the government’s welfare policy and a huge step away from Reaganomics.
Republicans, meanwhile, seem to want to revert to the stripped-down UI programs seen in 2019. It’s a sign that Murray and Reagan’s ideas still hold significant sway, even with roughly 10 million Americans still jobless. The old debate is set to continue for some time still.
At least 20 Republican-led states are terminating federal unemployment aid programs starting in June in an effort to force more people back to work – Texas became the largest one yet on Monday. Some Democrats urged the Biden administration to step in and prevent this from happening, but there’s no sign they will.
Sen. Bernie Sanders of Vermont called on the administration to keep jobless aid flowing under the Pandemic Unemployment Assistance program for millions of gig workers, contractors, and freelancers, set up under a federal rescue package early last year. In a letter to the Labor Department sent on Thursday, Sanders argued the agency had a legal obligation to do so.
The legal fight that Sanders is urging would be a bruising one at a moment Biden is pressing ahead with his $4 trillion economic agenda.
“They have not yet come out with a position that they can enjoin these states, and I know it’s a difficult legal and practical consideration for them,” Andrew Stettner, a senior fellow and unemployment expert at the left-leaning Century Foundation, told Insider. He said continuing the programs would either require buy-in at the state level, or the White House would have to confront Republican governors.
“They’d really have to clash with these states and it’s still unclear their appetite for that clash,” he said. Stettner recently projected that 2.1 million people would lose some form of unemployment aid in Republican states.
The largest chunk of that figure are on PUA and another federal program for the long-term unemployed. An estimated 1.3 million people would be deprived of all their jobless aid since they don’t qualify for regular state benefits. The remainder would receive the state payouts, but they typically replace only 40% of an individual’s past wages.
Biden is taking a hands-off approach on the issue after an unexpectedly dismal jobs report earlier this month. Last week, he underscored the ability of states to reimpose job-seeking requirements that were scrapped early in the pandemic as jobs vanished and unemployment surged. He also stressed that jobless aid was not the main factor keeping people on the sidelines, an argument economists largely agree with as well.
The White House is strongly indicating it’s leaving it up to states to decide whether to yank the unemployment aid ahead of its end in early September.
A White House official who spoke to Insider on condition of anonymity cited progress made on distributing vaccines and said the administration expects more workers to reenter the labor force in the next few months. The official said they’re attempting to find a middle ground between businesses and the unemployed as the economy recovers.
“We recognize that every state has different conditions on the ground,” the official told Insider, adding “the announcements [Biden] made last week are designed to balance the needs of both workers and employers as we work through this unprecedented transition.”
On Friday, Press Secretary Jen Psaki said, “I would say that we certainly understand that governors and leaders are going to have to make a decision in regard to unemployment benefits, but what’s important to remember and what we remind people of is that, again, we don’t see this as a major driver in preventing people from seeking employment and seeking work.”
Republicans are urging governors to continue dropping the programs. “Our local job creators should not have to compete with the federal government for workers,” House Minority Leader Kevin McCarthy of California wrote in a letter to governors last week.
The past seven days has been the toughest stretch yet for Bidenomics – the product of President Joe Biden’s ambitious effort to slash entrenched economic inequalities through major spending on infrastructure, childcare, clean energy, education, and cash benefits.
The lackluster April jobs report fueled Republican criticism of a labor shortage, prompting at least 17 red states to announce they will start pulling out of federal unemployment programs in June. Then a sharp rise in inflation heightened concerns that consumer demand is outpacing supply in various economic sectors, pushing prices up for goods like used cars, airline tickets, and recreational activities.
Meanwhile, a gas shortage is pummeling many Americans in the southeast just ahead of Memorial Day, following a cyberattack shutting down an important pipeline that supplies fuel to the East Coast.
Yet the White House says it’s not getting knocked off course as it pursues $4 trillion in new federal initiatives to overhaul the economy, with Republicans stepping up their attacks.
“We have consistently shared our expectations that inflation would rise, and we’ve also stressed why we thought that would occur,” a White House official who spoke on condition of anonymity told Insider. “No one expected it would be smooth or easy to reopen our economy, and we have anticipated disruptions as we slowly work towards the recovery.”
“I think the president’s team deserves criticism for not diagnosing the problems correctly,” Douglas Holtz-Eakin, a former economic aide to President George W. Bush, told Insider.
Holtz-Eakin said “demand is outstripping supply” and cited shortages of materials like computer chips. He added a related issue is that fewer Americans are in the workforce, arguing federal unemployment benefits are “part of that story, not all of it.”
This supply-demand imbalance has led to soaring prices, especially for used cars. “Inflation is always a supply issue,” Holtz-Eakin said. “To simply throw more money at it is not a solution.”
‘The trend is our friend’
Biden advisors argue the economy is demonstrating signs of healthy progress after a year of crushing restrictions, unemployment, and business closures. Despite April’s big jobs miss of just over 266,000 jobs regained, they say 500,000 jobs have been created on average in the past three months.
“We’re making good progress,” Cecilia Rouse, chair of the Council of Economic Advisors, said at a news conference on Friday. “However we must keep in mind that an economy will not heal instantaneously. It takes several weeks for people to get full immunity from vaccinations, and even more time for those left jobless from the pandemic to find and start a suitable job. Supply chains have been disrupted and sectors hardest hit are just beginning to come back.”
“The trend is our friend, moving steadily in the right direction,” White House economist Jared Bernstein told Bloomberg on Tuesday.
Many economists cautioned against misinterpreting the 4.2% rise in consumer prices last month – the largest monthly increase since 2008 – given it was measured from a year earlier. Prices plummeted in April 2020 as businesses closed their doors and people sharply cut their spending, so the resulting increase appears larger which many experts had been forecasting.
But former Treasury Secretary Lawrence Summers, who has consistently criticized the scale of Biden’s spending, is not one of them. “I was on the worried side about inflation and it’s all moved much faster, much sooner than I had predicted,” Summers told Bloomberg. “That has to make us nervous going forward.”
Federal Reserve chair Jerome Powell said he expects inflation to subside later in the year.
Despite the recent tremors, Democrats remain confident that they will be able to secure passage of Biden’s economic proposals, financed with tax hikes on high-earning Americans and large firms.
“It’s way too early to say that this job recovery won’t continue robustly,” Rep. Don Beyer of Virginia, chair of the Joint Economic Committee in Congress, said in an interview. “I believe it’ll take until August that we get a House bill over to the Senate that’s dealing with the potential tax increases, so there’s still a lot of time to figure out what’s happening in the economy.”
The first is a $2.3 trillion spending plan devoted to highways and roads, in-home elder care, domestic manufacturing and clean energy. The other is a $1.8 trillion package focused on cash payments for families, free community college, affordable childcare, and paid family and medical leave.
Beyer said “there isn’t any anxiety about the spending plans” among Democrats he’s spoken to, though they’re open to a deal with the GOP that would likely diminish the size of a package.
“Politics is the art of the possible. We’re not going to be angry at a President Biden who ends up finding a compromise ground that 10 Republicans can live with,” he said, referring to the number of GOP votes in the Senate that Democrats need for a proposal to clear the evenly-divided chamber.
Biden could strike a spending deal with Republicans
The White House is in the midst of negotiating with Republicans on the $2.3 trillion package known as the American Jobs Plan. With Senate Minority Leader Mitch McConnell’s stamp of approval, Sen. Shelley Moore Capito of West Virginia is steering the talks on the Republican side with an initial $568 billion offer. Only a third of it is new federal spending.
On Thursday, Biden described it as “a genuine effort,” and added “I think we can get there” as a two-hour meeting with Capito and a group of Republicans got underway.
“It was a very positive meeting,” Capito told Fox News on Friday. “We’re going to go back to the president early next week with another offer that, in light of the conversation that we had, trying to seek that bipartisan agreement.”
Both parties remain far apart on the price tag of a plan and even defining what makes up infrastructure. Republicans are pushing to constrain it to only physical transportation and communications, while Democrats want to include robust safety net spending on childcare and education.
The White House is walking a tightrope when it comes to pushing a potential deal through a 50-50 Senate and narrow House majority. Many Democrats are calling for a large infrastructure package with large new investments, given their full control of Washington’s levers of power.
They are also wary of dragging out negotiations when they have the ability to approve a wide range of the spending plans in reconciliation, a tactic to approve a budgetary bill with a simple 51-vote majority in the Senate.
Sen. Ron Wyden of Oregon, who heads the Senate Finance Committee, is kicking off infrastructure hearings later this month. He said there’s “a lot more work to do to climb out of the deep economic hole the pandemic created.”
“Control of both chambers of Congress and the presidency is rare, and it’s critical that Democrats do all we can with this opportunity to make real progress for the American people,” Wyden said in a statement to Insider. “While it would be our hope that we can do much of what the president outlined on a bipartisan basis, it’s much more important to get things done for the American people.”
The picture of American employment – and unemployment – is a confusing one right now.
Some employers say there’s a rampant labor shortage in sectors of the economy such as restaurants, with workers opting to remain on generous unemployment benefits instead of returning to work. The April jobs report on Friday showed that employers added 266,000 jobs, an amount well below forecasts for a million new payrolls or more.
The data provided new heft for Republicans and business groups to argue that the $300 weekly federal unemployment benefits from President Joe Biden’s stimulus are keeping people from seeking open jobs, curtailing the economic recovery. The Chamber of Commerce slammed the jobless aid, saying in a statement that “the disappointing jobs report makes it clear that paying people not to work is dampening what should be a stronger jobs market.”
The labor-shortage increasingly looks evident, as job openings data from March out on Tuesday morning show openings at an all-time high and the job-filling rate at an all-time low, per Jed Kolko, chief economist at Indeed.
Some large companies are increasing hourly pay to fill open positions and coax people who left the labor force or drawing down unemployment to accept a new job. Chipotle announced on Monday it was raising pay for workers by around $2 an hour, bringing its average pay to $15 per hour by June for all employees. It’s one of several major employers to hike compensation over the last year, including Walmart and Amazon.
Some chain restaurants in the historically low-paying industry are also expanding the type of incentives they’re offering prospective hires instead of hiking hourly pay. They range from signing bonuses to leadership conferences to 401(k) matching. Still, the Biden administration is doubling down on its stance that simply paying workers higher wages will speed up the recovery.
“My expectation is that, as our economy comes back, these companies will provide fair wages and safe work environments,” Biden said Monday from the White House. “And if they do, they’ll find plenty of workers and we’re all going to come out of this together better than before.”
The childcare effect
Childcare is a prohibitive factor in preventing workers from returning, according to experts. A UBS note last week said that, while the “impact of the unemployment benefits may be overstated,” a large participation gap remains among workers with young kids – a key group in the labor market.
“I think we’ve all been very hopeful that we’re turning the corner, and we’re moving forward, and that components of this pandemic – that the big principal issues of the pandemic are behind us – but I think that we need to rethink that,” Misty L. Heggeness, a principal economist and senior advisor at the US Census Bureau, told Insider.
“That’s not true for a subset of our workforce. I think we’ve seen improvements until now because these have been the low-hanging fruits.” The lack of childcare is “crippling” our ability to return to work and facilitate economic growth, she said.
According to an analysis from the National Women’s Law Center (NWLC), 165,000 women dropped out of the labor force in April. Women only accounted for 161,000 of the jobs added in April. That means that – not accounting for any population growth – it will take women 28 months to return to pre-pandemic employment levels at that pace.
On Monday, the White House said it would be accelerating the distribution of childcare assistance included in the American Rescue Plan. Childcare is also a major plank of Biden’s $1.8 trillion American Families Plan.
‘Some upward pressure in wages’
The April jobs report showed wages climbing modestly overall, which could partly be due to businesses ramping up efforts to lure people back into the workforce. A Bank of America note on Monday from a team led by Joseph Song noted that average hourly earnings rose 0.7% for all workers after the latest April jobs report.
“When you dig into the details, you saw some pretty remarkable increases in wages in categories like transportation and warehousing, retail, leisure, and hospitality – all sectors that should be seeing a real boom in demand and hiring,” Michelle Meyer, the head of securities at Bank of America’s US economics team, told Bloomberg. “There’s obviously some friction there where there’s a whole lot of demand for workers but there isn’t enough of a supply at the moment and that’s creating some upward pressure in wages.”
Still, wages aren’t rising quickly enough to address the hiring shortage. Employers may be reluctant to hike pay at this stage, fearful that high consumer demand could taper off later in the year and leave them with excessive payroll costs.
“You’re competing with a temporary unemployment supplement,” Neal Bradley, executive vice president of policy at the Chamber of Commerce, told The New York Times. “You’re not going to make a permanent wage adjustment for a temporary, government-induced distortion,” he said, referring to the September expiration of expanded federal aid.
Biden has defended the $300 federal jobless aid as a measure that isn’t dissuading people from leaping back into the workforce. However, on Monday he said that the Labor Department would be helping states reimpose job-hunting requirements that were largely waived during the pandemic.
“We’re going to make it clear that anyone collecting unemployment who is offered a suitable job must take the job or lose their unemployment benefits,” he said. Twenty-nine states have already done so, according to a White House fact sheet.
President Joe Biden said in a speech on Monday that Americans receiving unemployment benefits must either take a job that is “suitable” or lose their benefits, as he encouraged states to reinstate a pre-pandemic policy of requiring people to search for work.
“We’re going to make it clear that anyone collecting unemployment who is offered a suitable job must take the job or lose their unemployment benefits,” Biden said at the White House.
According to a White House fact sheet released after the speech, the Department of Labor will “reaffirm longstanding” unemployment-insurance requirements to ensure that states, workers, and employers understand the rules regarding the benefits.
The Department of Labor will also issue a letter to states reaffirming that people receiving benefits cannot turn down a suitable job to continue receiving their benefits.
Experts said these job-seeking guidelines were in place before the pandemic, and states scrapped them last year as the economy crashed, which caused a surge in unemployment. While the economic situation is improving, those experts said factors like a lack of childcare and school closures were keeping some people out of the workforce.
“On the whole, the Biden Administration is moving to return UI slowly like the rest of the economy to its” pre-pandemic rules, Andrew Stettner, an unemployment expert at the Century Foundation, said in emailed comments to Insider.
“Advocates are concerned that policy makers ensure that no workers are cut of off benefits because they cannot find affordable child care, and the reinstatement of work search requirements raises the stakes for this type of protections,” he added.
This announcement came after a jobs report last week that fell significantly short of expectations, with Republican lawmakers casting the blame on too-generous unemployment benefits disincentivizing Americans from returning to work.
While Biden said in his speech that “we don’t see much evidence” of benefits hurting job growth, his remarks suggested he was listening to GOP criticism on the issue.
Since the start of the pandemic, Republicans and businesspeople have criticized expanded unemployment insurance – inserted into March 2020’s CARES Act by Democrats in the House – as too generous. While the $600 federal unemployment addition to weekly benefits expired last year, Congress reinstated it in December at $300 a week, which Biden extended through September 6 as part of the stimulus law in March.
The US Chamber of Commerce called for an end to the benefits in the wake of the April jobs numbers, but Democrats like Sen. Bernie Sanders of Vermont said on Twitter that “workers desperately need” the benefits.
While states waived their unemployment-benefits work requirements at the start of the pandemic, 39 of them have already started, or are planning to, reimpose them.
Biden said: “We’ll insist that the law is followed with respect to benefits, but we’re not going to turn our backs on our fellow Americans.”