Mississippi and Arkansas become latest states to cancel federal unemployment benefits

A growing number of Republican governors are planning to stop some of the federally-funded unemployment benefits to get their states' workers back on the job amid concerns of a labor shortage.

Mississippi and Arkansas are the latest states to cancel the programs after Montana and South Carolina both announced similar moves last week. The governor of Indiana is also considering opting out of the programs.

"The purpose of unemployment benefits is to temporarily assist Mississippians who are unemployed through no fault of their own," Mississippi Gov. Tate Reeves said in a statement Monday, noting that the benefit will end on June 12. "It has become clear to me that we cannot have a full economic recovery until we get the thousands of available jobs in our state filled...Mississippi is open for business."

Reeves also said he will direct the state to enforce all eligibility requirements for jobless benefits, which was waived during the pandemic. On Friday, the Arkansas governor also announced an end to the unemployment programs.

"Continuing these programs until the planned expiration date of September 4, 2021, is not necessary and actually interferes with the ability of employers to fill over 40,000 job vacancies in Arkansas," Gov. Asa Hutchinson said in a letter.

Indiana Gov. Eric Holcomb is asking the state Department of Workforce Development to complete a demographic analysis of unemployed residents before making a decision.

"We must concentrate on building the right pathways to match people with the skill sets employers need and to attract more people to join our workforce," Holcomb said in a statement on Friday.

‘Limited evidence of work disincentives'

But critics say the move comes too soon, when the numbers of unemployed workers remains high.

"The 100% federally-paid unemployment benefits have boosted spending and contributed to the strong economic recovery," Andrew Stettner, an unemployment insurance expert and senior fellow at the Century Foundation, told Yahoo Money. "It's shortsighted for the state to sacrifice that economic stimulus based on the anecdotal labor shortages concerns of a few employers, especially given the limited evidence of work disincentives from unemployment pay during the pandemic."

At the end of June, jobless workers in Arkansas, Montana, and South Carolina will lose the extra $300 in weekly unemployment benefits but maintain their regular benefits. Contractors, gig workers, and others will also lose access to the Pandemic Unemployment Assistance (PUA) program, meaning those workers won’t get any benefits.

Arkansas' March unemployment rate was 4.4% down from its 10% pandemic peak in April 2020, while South Carolina's and Montana's unemployment rate was 5.2% and 3.8% respectively in March down from its 11.5% and 11.9% pandemic peak in April 2020, according to data from the Labor Department.

The cancellation of this support would cost workers in those three states at least $3,000 per worker in supplement benefits if they couldn't find work through the program's expiration. Workers on PUA and PEUC would lose at least $3,810 in Arkansas, at least $4,500 in benefits in Montana, and at least $3,420 in South Carolina because they would no longer qualify for the base unemployment benefit.

'Dampening what should be a stronger jobs market'

The move to cancel benefits gained momentum after last week's dismal job report that showed employers increasing payrolls by just 266,000 jobs in April, well below the 1 million that economists expected.

The U.S. Chamber of Commerce urged Congress to cancel the extra $300 in weekly unemployment benefits after the "disappointing jobs report" on Friday saying that "paying people not to work is dampening what should be a stronger jobs market."

But labor shortage skeptics point to two studies that found the extra $600 in benefits distributed earlier in the pandemic had limited labor supply effects and likely didn’t disincentivize work. The current supplemental benefit is worth half of what those papers reviewed.

Arkansas, Montana, and South Carolina are the only three states to fully opt out of the federal unemployment benefit programs enacted in the pandemic and currently extended by the American Rescue Plan signed into law in March.

Montana is the only state of the three so far to cancel benefits to also offer a one-time return-to-work payment of $1,200, using money from the American Rescue Plan to fund the program. Only those who complete four weeks of work would receive the payment.

"Incentives matter," Montana Gov. Greg Gianforte said. "Our return-to-work bonus and the return to pre-pandemic unemployment programs will help get more Montanans back to work."

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

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