- Several states have opted to halt supplemental unemployment benefits ahead of their Sept. 6 expiration in an effort to address a labor shortage
- While this move can help employers with filling job openings, it won’t be a catch-all solution as different factors are playing a role in keeping people out of the workforce or causing them to seek new opportunities
- InnovatorsLINK encourages Governor Ned Lamont to consider ending supplemental unemployment while also providing the necessary assistance to train and retrain Connecticut’s workforce
The signs that began appearing on the doors of restaurants, shops, and other businesses this spring typically began with a simple appeal for understanding, such as “Please be patient. We are currently short-staffed.”
These messages would have been nearly indistinguishable from the everyday request that you wait to be seated, but for their bitter coda: “Nobody wants to work anymore.”
There has been a curious disconnect between work opportunities and unemployment as the United States emerges from a long year of COVID-19 restrictions. People have eagerly started to resume their pre-pandemic activities, and businesses have ramped up their operations to meet demand. There were a record 9.3 million job openings in April, just 500,000 fewer than the tally of unemployed people in the same month.
And yet April’s jobs report proved a bitter disappointment. While Dow Jones economists projected that nearly 1 million jobs would be added during the month, the actual total came to just 266,000 (later revised to 278,000). May’s job report saw new positions rebound to 559,000, but this figure again fell below economists’ projections.
Following April’s dismal job creation, a supplemental $300-a-week unemployment benefit became a lightning rod for criticism. This benefit had initially proved to be a somewhat bipartisan response to elevated unemployment during COVID-19; it was established during the Trump administration (halving a more generous $600-a-week supplement created at the outset of the pandemic) and has been extended through Labor Day under the American Rescue Plan developed under the Biden administration.
But the stalled jobs growth prompted arguments that the supplemental unemployment was creating a disincentive for those who might otherwise return to work – especially if they were collecting as much or more than they earned at their previous job. Twenty-five states are now planning to exit the program early, with some making their departure last week.
Most of these states are Republican-led, but there is growing pressure on Democratic governors to consider leaving them as well. Governor John Bel Edwards of Louisiana recently became the first Democratic governor to say he would drop the $300-a-week benefit, starting July 31, in exchange for a moderate increase in state benefits negotiated with Republican lawmakers.
The impact of these actions will be seen in the coming months. A message from JPMorgan suggested that the withdrawals were driven more by politics by economics, but acknowledged that the programs were likely limiting labor supply as well. A Federal Reserve Bank study found a “small but noticeable” relationship between the supplemental benefits and non-participation in the labor force.
Connecticut has taken steps hinting that supplemental unemployment might be contributing to the drag on businesses’ labor needs, including the restoration of a work search requirement for unemployment beneficiaries and a program offering a $1,000 bonus for long-term unemployed residents to find and retain work. And the legislature recently approved a bill to restore the state’s Unemployment Insurance Trust Fund that included several curtailments to benefits (remarkably, it won unanimous support among Democrats, Republicans, business groups, and labor leaders).
However, Governor Ned Lamont should consider withdrawing from the supplemental unemployment program as a stronger incentive to get the state’s populace back to work. The state’s unemployment figures have been troubling, hovering above the national unemployment rate since September 2020.
Connecticut’s unemployment rate has remained persistently above 8 percent, dropping just 0.3 points between August 2020 and April 2021. In recent months, the state’s unemployment rate has been as much as 2.3 points above the national rate. Ending the supplement would likely bring the rate down by spurring anyone who should have already returned to work to do so.
Red Jahncke of the Connecticut business consulting firm Townsend Group LLC recently penned an op-ed saying that the state is in a particularly precarious situation, as its slow population growth puts further strain on businesses looking to hire workers. Jahncke argues that ending the supplemental benefit will also relieve a financial burden on the state, since Connecticut still has to pay its share of state benefits even as the federal government covers the supplement.
Many other causes have been cited for the reluctance, or outright inability, of people to return to work. For example, a recent U.S. Chamber of Commerce survey found that child and family care needs, along with a lack of necessary skills, were more prevalent deterrents than the feeling that it was “not worth looking” for work due to enhanced benefits. Connecticut, to its credit, has been pursuing efforts to expand child care options and workforce development opportunities. But these efforts will prove more valuable in long-term strategies rather than addressing the short-term need for labor.
Curiously, the labor shortage is similar to a similar labor challenge that faced employers before the pandemic. Two years ago, the National Federation of Independent Business found that small businesses were having difficulties attracting workers amid low unemployment levels, as they had limited resources for recruiting and more difficulty offering the same wages and benefits as larger competitors. NFIB’s findings in recent surveys have been virtually identical.
Meanwhile, existing employees have also been galvanized to seek opportunities elsewhere. Labor Department data has shown that workers are quitting their jobs at increasing rates, and that this trend is more concentrated in higher stress and lower wage jobs such as retail or food service.
Ending supplemental unemployment early can provide some relief to employers facing labor shortages. It will not be a magic bullet. In past employment downturns, Connecticut has provided employee training support for small businesses to train or retrain workers to improve their skills and earning capacity. This has been very successful in the past. There are no programs on the horizon, and they are badly needed.
InnovatorsLINK asks that Governor Lamont provide the leadership to aggressively provide the assistance to develop and retain the Connecticut workforce that traditionally has been our strength. Time is of the essence!
