States are ending federal unemployment benefits early. Here’s what to know and what’s at stake

Finance news

Ohio Gov. Mike DeWine said Thursday that the state would end its participation in federal unemployment programs June 26.

Justin Merriman | Getty Images News | Getty Images

So, what’s going on?

At least 16 states have elected to opt out of federal programs paying unemployment benefits.

As of Thursday, they include Alabama, Arkansas, Arizona, Georgia, Idaho, Iowa, Mississippi, Missouri, Montana, North Dakota, Ohio, South Carolina, South Dakota, Tennessee, Utah and Wyoming.

All are led by Republican governors. Montana was the first state to announce its withdrawal, on May 4.

How soon is this happening?

The American Rescue Plan made these federal programs available until Labor Day, on Sept. 6.

States are ending their participation around two or more months early — anywhere from June 12 to July 10. (It varies by state.)

How many people are affected?

The governors’ decisions would reduce or cut off benefits for nearly 2 million people.

Around $11 billion of total funding is at stake, according to Andrew Stettner, a senior fellow at the Century Foundation.

What programs are involved?

States are withdrawing from programs enacted by the CARES Act in March 2020.

Together, the programs raised the amount of weekly aid, extended its duration and offered funds to workers who don’t typically qualify for state benefits.

How will my benefits change?

States will no longer issue an extra $300 a week to workers.

Those receiving state benefits will continue getting that aid, which generally amounts to half their pre-layoff wages. The average person got $350 a week in state benefits in March, according to the Labor Department.

(Benefits vary widely by state. Among opt-out states, for example, they ranged from $195 a week in Mississippi to $480 in North Dakota.)

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Certain workers won’t just get a benefit cut — they’ll lose aid entirely.

Those groups include the long-term unemployed (who’ve exhausted their maximum allotment of state benefits) as well as gig workers, the self-employed, freelancers and others collecting what’s known as Pandemic Unemployment Assistance.

This is the case in most — but not all — the states in question. In Arizona, for example, residents are only losing access to the $300.

Why is this occurring?

Governors have pointed to labor shortages as the driver of their decisions to opt out of federal funding.

They claim enhanced unemployment benefits offer an incentive for people to stay home and not look for jobs — leaving businesses struggling to fill open positions.

“While these benefits provided supplementary financial assistance during the height of COVID-19, they were intended to be temporary, and their continuation has instead worsened the workforce issues we are facing,” said Missouri Gov. Mike Parson.

Is there a labor shortage?

It’s hard to pinpoint the answer with available data, according to economists. But evidence suggests labor shortages are occurring, at least in some areas and sectors.

The most compelling evidence is twofold, according to Daniel Zhao, a senior economist at Glassdoor, a job and recruiting site.

Job openings hit a record high in March, the Bureau of Labor Statistics reported Tuesday. Meanwhile, the U.S. economy added 266,000 job payrolls in April — much weaker than the 1 million expected, the Bureau said last week.

In other words, there’s strong demand for labor as the economy reopens, but not a commensurate flood of workers onto payrolls.

Where are they most acute?

It seems shortages are most pronounced in industries like leisure and hospitality, which includes food services and restaurants.

This is where most anecdotes of shortages among business owners seem to be sourced and where companies like McDonald’s and Chipotle are raising wages and offering bonuses to attract workers, Zhao said.

Some states are likely experiencing a labor crunch more than others.

In Montana, for example, the labor market appears to be close to pre-Covid status, unlike the rest of the U.S., according to Peter Ganong, an assistant professor of public policy at the University of Chicago.

Many (but not all) states opting out of federal benefits have unemployment rates below the national average of 6.1%. (For context, the national rate is still almost double its 3.5% pre-pandemic level.)

Are unemployment benefits the problem?

Unemployment benefits likely play at least a small role, economists said.

Research suggests higher benefits reduce job-search intensity. This wasn’t a problem earlier in the pandemic when jobs were scarce. But it’s hard to say how much they may or may not be a factor now.

Are there other factors?

The coronavirus — not unemployment benefits — is likely the primary issue, according to labor experts.

New daily infections, while falling, are still in the tens of thousands. And less than half (46%) of American adults are fully vaccinated, according to the Centers for Disease Control and Prevention. (That share, which includes seniors, is lower among the working population.)

I don’t think it’s possible to quantify how much each factor contributes to labor shortages. There are so many different headwinds blowing at the same time.

Daniel Zhao

senior economist at Glassdoor

Vaccines also weren’t widely available until recently. Workers need two to six weeks for full efficacy of the regimen — meaning many can’t safely return to work until June, according to Diane Swonk, chief economist at Grant Thornton.

There are other pandemic-era contributors, too: erratic school re-openings, child-care duties and a dearth of after-school programs that largely help low-income parents. Many baby boomers opted to retire early and may not rejoin the labor force — reducing overall labor supply.

The labor-shortage discussion is also often divorced from the issue of wages and hours — workers may want a job but not at prevailing wages or on erratic or part-time schedules.

It may also be unrealistic to expect workers to take a job at the same speed at which jobs are being posted. Labor supply typically takes longer to respond than demand, Zhao said.

“I don’t think it’s possible to quantify how much each factor contributes to labor shortages,” he said. “There are so many different headwinds blowing at the same time.”

Further, states opting out of federal unemployment funding may dilute some demand for businesses — and the need for additional workers — if it contributes to less spending at the local level.

Some states pay a return-to-work bonus. What’s that?

Montana and Arizona are replacing enhanced unemployment benefits with a one-time bonus for people who find and hold a job.

Arizona is offering $1,000 and $2,000 bonuses (on a first-come, first-served basis) to those who find part- and full-time jobs, respectively. They must complete at least 10 weeks of work.

Montana’s paying a $1,200 bonus to people who find full-time employment for four weeks.

Is this all set in stone?

Not necessarily.

Sen. Bernie Sanders, I-Vt., and the National Employment Law Project petitioned U.S. Labor Secretary Marty Walsh this week to intervene on behalf of workers.

They argue Walsh has the legal authority to prevent the loss of benefits for self-employed, gig and other workers collecting PUA, due to certain wording in the CARES Act. (It seems the same flexibility wouldn’t apply to other programs, however.)

It’s unclear if the Labor Department will attempt to intervene.