More jobless workers sue states over what studies show is a misguided labor policy

·Reporter
·3 min read

As more workers sue states for opting out of the federal unemployment programs prematurely, more studies show that the cancellation of those benefits haven’t led to job gains.

Workers in Idaho and Iowa are the latest to file a lawsuit against their state, bringing the total number of states facing such suits to 14.

“The State’s unlawful action has unnecessarily and prematurely severed the lifeline of thousands of struggling Idahoans and risks plunging thousands of Idaho residents into housing instability as well as severe emotional and economic crisis,” the Idaho complaint reads.

In all, 26 states have cut off some or all of the pandemic-era unemployment aid before the federal expiration to combat rising concerns over labor shortages. But the early terminations have not had their intended effect.

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There is a “zero correlation” between state-level employment growth in July and the timing of the early cancellation of the benefits, according to an analysis by JPMorgan. Similarly, there’s no difference in earnings growth or labor force participation in states that unenrolled from the programs early and those that didn’t.

“There doesn't seem to be much relationship between how much time has elapsed since benefits have ended and the rate of growth in terms of employment, overall earnings growth, or labor force participation,” Peter McCrory, JPMorgan analyst and author of the report, told Yahoo Money.

While state employment didn’t grow more in states that opted out early, 1 in 8 workers who lost some or all of their benefits in the 19 states that ended the programs in June found a new job by August 6, according to research by a team of economists who analyzed banking data of more than 18,000 low-income workers who got benefits.

But the majority didn’t find jobs, leading to a loss of income and a decline in spending. Additionally, it might be more difficult for unemployed workers to find jobs now when more workers are looking, according to McCrory.

“If workers who lose benefits find jobs at higher rates, they might be contributing to congestion effects in the labor market,” he said. “It's harder for other people to find jobs, or to acquire employment if there are more people now competing for the open position.”

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‘The state’s decision to terminate the benefits did not violate the statute’

Workers who filed lawsuits in their states have found mixed success.

Lawsuits in Arkansas, Maryland, and Oklahoma have been successful and benefits have been reinstated — in some cases, only temporarily. But the cases in Indiana, Louisiana, Ohio, and West Virginia have been denied by judges.

The Indiana Court of Appeals reversed a lower court's ruling requiring Gov. Eric Holcomb to provide federal pandemic benefits. The appeals court ruled that state law doesn’t require participation in federal programs and that the lower court "abused its discretion" when previously granting a preliminary injunction.

“Because we find that Indiana [law] does not require participation in the CARES Act programs, the state’s decision to terminate the benefits did not violate the statute,” Judge James Kirsch wrote.

A couple walks past a 'now hiring' sign posted at a store in New York City on August 20, 2021. - US states that ended pandemic jobless benefits early saw slight dips in unemployment rates but big declines in spending and income, according to a study released Friday, in what could be a preview of the effects nationwide when the programs end completely. (Photo by Angela Weiss / AFP) (Photo by ANGELA WEISS/AFP via Getty Images)
A couple walks past a 'now hiring' sign posted at a store in New York City on August 20, 2021. (Photo by ANGELA WEISS/AFP via Getty Images)

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