The Unemployment Bonus is Holding States Back from Economic Recovery

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unemployment bonus holding back economic recovery

A Michigan staffing agency reported a 90 percent no-show rate for interviews. A popular waterpark in Maine only has enough employees to keep the doors open for five days a week instead of seven. And for the first time in its history, Williston Coffee Shop in Maine had to stay closed over what has historically been one of its busiest holiday weekends.

In the race toward economic recovery post-lockdown, states like these that continue to disincentivize work with inflated unemployment bonuses are being left in the dust, and its small businesses and the families that run them who are suffering the most.

States that are encouraging people to return to work and creating a climate where business thrives, on the other hand, are coming out of the gate strong.

In the wake of the lockdowns, federal unemployment insurance (UI) bonuses were meant to be additional, temporary relief for those who lost their jobs. Unfortunately, the inflated $600 weekly bonus meant many Americans could suddenly make more on unemployment than they could working an actual job.

With restrictions waning and millions of unfilled, open jobs, states are realizing the time has come to get back to normal and get people back to work. But the weekly UI bonus is threatening their plans for economic recovery.

The differences in economic recovery between states that have opted-out of the federal UI bonus and those who continue to opt-in are stark yet unsurprising: States that ended the bonus are seeing positive economic recovery, and those continuing to reward non-productivity are not.

In opt-out states, people are going back to work

Twenty-six states have announced an end to the most recent $300 weekly UI bonus, while 24 states have not—and the former are seeing the most encouraging economic recovery because revoking the UI bonus has encouraged people to rejoin the workforce.

  • Of the thirteen states that ended the UI bonus in June, the number of people filing new unemployment claims has been cut in half since May 1.
  • The 26 states that have announced an end to or ended the UI bonus have seen new unemployment claims drop more than 35 percent since May 1, and have seen a 19 percent drop in people on unemployment.

In these states, job fairs were previously barren wastelands and desperate help wanted signs went ignored, but now, in Missouri for example, more people are now applying, showing up, and staying on the job.

This bodes well for states that have chosen to end the UI bonus. More people working means less government expenditure and dependence, more growth for economies.

In opt-in states, UI claims are increasing

Meanwhile, unemployment claims in states that continue the $300 weekly bonus are increasing—and by discouraging margins.

  • In June, Pennsylvania saw a 474 percent increase in new unemployment claims over the course of just two weeks. Over these two weeks in June, bonus states saw a 19 percent increase in new unemployment claims.
  • This trend has continued into July, as bonus states have consistently seen a weekly increase in new claims according to a recent U.S. Department of Labor (DOL) report. Meanwhile, the same DOL report indicates that opt-out states have seen steady decreases in new claims for four consecutive weeks.

It’s more than just data—these numbers represent severe impacts on American lives and businesses. Behind the numbers is a harsh reality for business owners like Larry and Roxane Maggio have had to face this year. After ten years of running Ludovico’s, a successful deli in Haddonfield, NJ, they closed their doors— “not because business was bad,” but because they simply could not find any employees to stay and work.

States need to stop disincentivizing work if they want to recover

With a record number of available jobs—more than nine million—there is no reason to continue paying able-bodied Americans to stay home. States that continue to accept the UI bonus are forcing business owners to compete with their own tax dollars for employees because it’s more lucrative to stay home than go to work.

Just like races aren’t won by loitering around at the starting line, economies don’t grow and recover by paying people not to work.

Ideally, the remaining states need to opt-out of the UI bonus as soon as they can, to at least salvage a few weeks of summer tourism and hospitality jobs before the September expiration. Until the 24 states still rewarding people for not working decide to pick up the pace toward economic recovery, states that have ended the UI bonus will continue to enjoy victory as they barrel onwards. Now, the only real bonus that the remaining federal UI states are providing are to the economies of states that have opted out.