Add Arkansas and Mississippi to States Canceling Federal Unemployment Benefits

A growing number of GOP-led states have decided enhanced unemployment benefits are a problem.

Unemployed Americans living in some Republican-led states have an unwelcome surprise coming their way. Gov. Asa Hutchinson of Arkansas and Gov. Tate Reeves of Mississippi have announced that their states will cease the federally-backed unemployment boost rather than allowing it to expire as scheduled on Sept. 4, 2021.

Arkansas and Mississippi join Alabama, Idaho, Iowa, Missouri, Montana, North Dakota, South Carolina, Tennessee, and Wyoming in cutting the $300-a-week federal payments. The $300 "boost" was added to state unemployment benefits in an effort to help millions of out-of-work Americans get through the worst of the pandemic. And while Indiana Gov. Eric Holcomb weighs pulling the benefit from the unemployed in his state, the governors who have already announced their decisions are giving recipients a few weeks to make other plans.

Some lawmakers think cutting the benefits will be good for the labor market

As more Americans are vaccinated and businesses reopen, Republicans are concerned about a labor shortage. The average American receives $387 per week in unemployment benefits from their state, according to the Center on Budget and Policy Priorities. With the $300 boost from the federal government, that amount is $687 per week -- the equivalent of $17.17 an hour, based on a 40-hour work week.

The problem with unemployed workers receiving $17.17 per hour, according to Republican leaders, is that many Americans earn more collecting unemployment than they can working full-time.

For example, an employee working 40-hours per week at $17.17 an hour (the current average boosted unemployment benefit) can earn $35,714 annually. In Montana, where the minimum wage is scheduled to go up to $8.75 per hour in 2021, minimum wage workers in full-time jobs earn $18,200 annually.

The position of lawmakers pulling out of the federally-backed program is that employees will be forced back into the labor market when their incentive to stay home is removed.

The potential reality

Federal Reserve Chairman Jerome Powell said at a news conference last week that it is not clear if boosted unemployment benefits are the cause of the labor shortage. What if the perceived labor shortage is caused by other factors, like more people starting their own businesses or deciding to train for new jobs? It's possible that the experiences surrounding COVID-19 led people in a new direction and we're just now seeing the results.

Federally-paid unemployment benefits have boosted spending and are helping to contribute to the economic recovery, according to Andrew Stettner, a senior fellow at the Century Foundation. Stettner calls it "shortsighted" for a state to sacrifice the economic stimulus of that increased spending on anecdotes of labor shortages, coming from relatively few employers.

Other concerns regarding the sudden cut in benefits involves the number of working parents who will need to scramble for affordable childcare. Again, using Montana as the model, the average cost of daycare for one child is more than $9,500 annually, or more than half of the pre-tax earnings of a minimum wage employee. While Montana does plan to offer a one-time $1,200 bonus to those who return to work, that money will do little to defray the cost of caring for a child on an ongoing basis.

All of this back and forth provides no clear answers for those struggling to put money into their bank accounts or pay bills. The best we can hope for is that we'll all find a way to regroup and achieve our long-term goals.