JPMorgan economist: States ending unemployment early is 'politics, rather than economics'

Republican governors of 24 states plan to cancel federal unemployment programs in June citing worker shortages, but one economist called the move politically — not economically — motivated.

"Signs of labor market tightness when looking at unemployment rates, earnings growth, and participation rates don’t appear to be driving states to end these programs early," Daniel Silver, an economist at JPMorgan, wrote in a note on Wednesday. "It therefore looks like politics, rather than economics, is driving decisions regarding the early ends to these programs."

No states with Democratic governors are ending the programs, while Maryland, Massachusetts, and Vermont — the only GOP-led states that haven't announced such a move — are not "'pure' Red states" because they each have two senators in the Democratic caucus, Silver noted.

While some states opting out of the programs have tighter labor markets and stronger earnings growth, which could be signs of a worker shortage, that's not the case for many of them, according to Silver.

For instance, the unemployment rates in South Dakota and Montana have recovered to their pre-pandemic levels and or lower, but the rates remain well above their pre-covid levels in Texas and South Carolina.

The Texas unemployment rate in April was 6.7%, almost double its pre-pandemic level of 3.5% in December 2019. South Carolina's unemployment rate in April was 5%, twice its pre-pandemic level of 2.5%.

Similarly, wages have grown year over year in states like Idaho and South Dakota, signaling a potential labor shortage, but wages have declined in Oklahoma and Georgia for the same period, Silver noted.

'Have the hardest time finding a job'

Nebraska is the latest Republican-led state to opt out of the jobless programs early. Over 4 million workers in the 24 states stand to lose some or all of their unemployment benefits next month, totaling $23.3 billion in cumulative benefits, according to an analysis by the Century Foundation. That averages out to potentially thousands of dollars per worker.

The move to cancel the federal programs gained steam among Republican governors following April's disappointing jobs report. House Republicans, including House Republican Leader Kevin McCarthy (R-CA), urged all GOP governors to opt out of the federal programs in a letter earlier in May.

Arizona, Montana, New Hampshire, and Oklahoma are the only states so far of the 24 to offer a one-time return-to-work payment between $1,000 and $2,000, using money from the American Rescue Plan.

The cut-off in benefits will disproportionately hurt people of color in many states, according to Andrew Stettner, an unemployment insurance expert and senior fellow at the Century Foundation. 

Two-thirds of unemployment insurance recipients in Mississippi are Black, while around half in South Carolina and Alabama are Black. The percentage of Black Americans relying on unemployment in those three states is at least three times higher than the national average of 18%.

"We know in the southern states, people of color — Black workers in particular — are the majority of people on benefits," Stettner previously told Yahoo Money. "They're the ones that will have the hardest time finding a job because of discrimination and also they're the ones who were hit by COVID the hardest."

Denitsa is a writer for Yahoo Finance and Cashay, a new personal finance website. Follow her on Twitter @denitsa_tsekova

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