States push back federal unemployment policies that delay economic recovery
Economists of all ideological spectrum, from Casey Mulligan and Stephen Moore at Lawrence summers, warned that increasing unemployment benefits – such as the $ 300 per week bonus allowed by the federal American Rescue Plan Act (ARPA) – would encourage people not to work, slowing economic recovery. This should be a key lesson we all need to take away from Economy 101: When you tax people who work and pay people who don’t, no one should be surprised that fewer people are looking to work.
New data from the US Bureau of Labor Statistics revealed that the number of job postings across America has just reached 9.3 million – a record number since the office began reporting this information in 2000. The National Federation of Independent Businesses (NFIB) published its monthly report Small Business Optimism Index. While optimism has risen since January, a record 48% of business owners reported vacancies that could not be filled.
NFIB Chief Economist Bill Dunkelberg commented, “Small business owners are seeing sales growth, but being held back by the lack of workers. Finding qualified employees remains the biggest challenge for small businesses and slows economic growth. Owners increase wages, offer bonuses and benefits to attract good employees. “
Even as small businesses increase benefits, they find it difficult, if not impossible, to compete with the federal government printing presses, which continue to fund unemployment premiums. In many situations, it is possible for individuals to receive more unemployment and other benefits than if they actually returned to the labor market.
Recently, states have started to tackle this problem. Govt. Greg GianforteGregory Richard Gianforte Governors Can Protect Civil Liberties Also No Turning Back On Pandemic Unemployment Aid Jobs Report Shows More Stimulus Is Not The Answer MORE of Montana and Governor Henry McMaster from South Carolina led the way, declaring that their two states would end their participation in a series of federal programs created under the CARES Act last year and extended under ARPA, including the additional $ 300 per week for unemployment benefits authorized by ARPA.
Now 25 states announced they would stop paying extended unemployment benefits over the summer, with many states ending payments in June. A new report from the Foundation for Government Accountability has revealed some fascinating information. As the first 22 states announced their withdrawal of unemployment premiums, job applications immediately increased by 5 percent.
Last year, after the economic downturn, the state’s Unemployment Insurance (UI) trust funds were, not surprisingly, under immense stress. In one Annual Report on the solvency of the unemployment insurance trust fund released in March, the Labor Department found that 37 states had fallen below the minimum level required to achieve “adequate solvency.”
In May, the US Department of the Treasury issued a statement provide advice on using $ 350 billion in ARPA’s local and state coronavirus tax recovery funds. The Treasury clarified that federal funds can be used to replenish UI trust funds to pre-pandemic levels, if state policymakers choose to use those resources. If they choose this option, states will avoid damaging tax increases imposed on employers who pay taxes into their respective UI trust funds.
Another factor complicating the stability of public unemployment systems is widespread abusive payments and fraud. In addition to the millions of people laid off last year, the United States Department of Justice found that international organized crime groups used stolen identities to claim fraudulent unemployment insurance benefits. Recent reports show that billions in unemployment benefits last year were spent on falsified claims, further straining the state’s unemployment insurance funds.
The Idaho Department of Labor director commented, “Because of all the federal dollars, there’s a lot more money in there right now, and the relaxed eligibility requirements have really opened the door for scammers. There are international and national criminal networks that try to exploit unemployment insurance systems for money. “
The way forward for states to solve these UI problems is to get people back to work following the examples of Montana and South Carolina, and the states that have followed their example. As people re-enter the workforce, state and federal policymakers must seriously consider unemployment insurance reform that will help those who lose their jobs and also prevent future fraud. These efforts will protect the state’s financial solvency and, more importantly, protect hard-working taxpayers and employers.
Jonathan Williams is executive vice president of policy and chief economist at the American Legislative Exchange Council. Follow him on Twitter @taxeconomist. Thomas Savidge is the Research Director of the Center for State Fiscal Reform at the American Legislative Exchange Council.