Governor Kim Reynolds showed yet again on May 11 that she will happily undermine vulnerable Iowans’ household budgets in order to please Republican allies and business lobby groups.

But her plan to turn down tens of millions of dollars a week in federal unemployment benefits rests on flawed premises.

EXTRA PANDEMIC BENEFITS DON’T STOP PEOPLE FROM WORKING

Iowans will soon be unable to collect unemployment benefits through three federal programs created near the beginning of the COVID-19 pandemic, as well as a newer program the state hadn’t yet implemented.

The governor’s announcement spun the policy as forward-thinking.

“Federal pandemic-related unemployment benefit programs initially provided displaced Iowans with crucial assistance when the pandemic began,” said Gov. Reynolds. “But now that our businesses and schools have reopened, these payments are discouraging people from returning to work. Our unemployment rate is at 3.7 percent, vaccines are available to anyone who wants one, and we have more jobs available than unemployed people.” […]

“Regular unemployment benefits will remain available, as they did before the pandemic, but it’s time for everyone who can to get back to work,” Gov. Reynolds continued. “This country needs to look to the future, and Iowa intends to lead the way.”

Rapid-fire press releases from the Iowa Association of Business and Industry, Iowa Chamber Alliance, Americans for Prosperity, and the National Federation of Independent Business cheered the news.

But research doesn’t support their talking points.

Analysis by the Federal Reserve Bank of Chicago found that “the unemployed look for work much more intensely than either the employed or those out of the labor force.” In addition, “Among the unemployed, those currently receiving UI benefits search somewhat more intensely than those who have exhausted their benefits or those who did not collect benefits.”

CBS News cited a February study by JPMorgan Chase Institute, which “found after Congress boosted supplemental insurance to $600 last spring at the onset of the pandemic, many jobless workers who received the money returned to work before the supplement expired.”

Treasury Secretary Janet Yellen told reporters on May 7 that “when they looked at states and sectors where supplemental benefits were high, there weren’t lower job finding rates as the argument would suggest, and in fact it was the ‘exact opposite.'”

Tyler Jett reported for the Des Moines Register on May 11,

Andrew Stettner, a senior policy analyst at The Century Foundation, said employment did not seem to increase when the federal government’s supplemental payments for unemployment benefits dropped from $600 a week in the early months of the pandemic to $300 at the end of July. […]

The extra $300 ceased last fall through the end of the year. But employment growth remained relatively flat during that time.

The federal government resumed the $300 payments in January. Employment in Iowa fell that month by 4,400 employees. The state then added added 15,000 jobs the month after, even as the $300 payments continued.

Many factors can keep capable people out of the workforce. They may not be qualified for or physically able to do jobs available in their community. They may not have access to child care or transportation. They may be rethinking their life goals and hesitant to risk exposure to COVID-19, especially for low-paying retail or hospitality sector jobs.

Taking money out of these people’s pockets won’t automatically produce more applicants for unfilled positions.

CUTTING JOBLESS BENEFITS WON’T HELP THE ECONOMY

Republicans and business leaders have claimed too-generous unemployment benefits are hurting the economy. A statement from U.S. Representative Ashley Hinson was typical:

I’ve heard from businesses across Iowa who have “Help Wanted” signs on their doors, but can’t find workers to fill open jobs. This is because the government is paying people to stay home instead of work—this is a huge issue and barrier to long term economic growth. Economic polices that discourage people from working will pull down our economy. I applaud Governor Reynolds for continuing to implement common sense policies that will put our economy back on track and help get our lives back to normal.

According to a memorandum Iowa Workforce Development released on May 11, 14,570 Iowans received Pandemic Unemployment Assistance totaling $4.9 million for the week ending May 1. The same week, 18,703 Iowans received Pandemic Emergency Unemployment Compensation totaling $8.2 million, and 49,912 Iowans received Federal Pandemic Unemployment Compensation (the extra $300 weekly payments) totaling $19.7 million.

Since unemployment claims fluctuate from week to week, projecting future totals is tricky. But it appears likely that jobless Iowans will have at least $30 million less per week to spend on household necessities once Iowa stops administering the federal pandemic-related programs on June 13.

How can that be good for an economy that depends heavily on consumer demand?

When the CARES Act’s $600 weekly pandemic-related unemployment payments were about to expire last July, Josh Bivens of the Economic Policy Institute observed,

[W]hen the economy’s growth is demand-constrained, anything that keeps households from cutting back on spending actually supports growth. UI benefits are by definition laser-targeted on households that have suffered a severe shock to income by losing their job. Research shows definitively that spending falls much further in those households afflicted by job loss when they do not receive UI benefits. In the current crisis, UI benefits have kept the cutback in spending in closed sectors from leading more catastrophically to cutbacks in spending in other sectors. For example, as restaurant and airline employees lost their jobs early in the coronavirus crisis due to social distancing measures, UI benefits provided income to spend in still-going sectors like grocery stores, and contained some of the economic collapse.

In past recessions, UI benefits have been among the most efficient sources of support for aggregate demand, with each dollar spent on these benefits boosting economywide spending by as much as $2.

So Reynolds’ decision is not only “unconscionable and heartless,” in the words of Iowa House Minority leader Todd Prichard, it also defies common sense.

It has real consequences for Iowa families who are behind on rent, trying to put food on the table, pay for child care, and get their lives back to normal. Her action today will slow Iowa’s economic recovery for not only unemployed Iowans, but all Iowans.

Governor Reynolds needs to advocate for Iowans instead of using vulnerable Iowans as a stepping stone for her own political gain.

Other recent stepping stones for the governor include Iowans who rely on federal housing vouchers and those who would lose Medicaid or food assistance under a plan Reynolds has endorsed.

We’ll find out in the coming months whether Iowa businesses experience the hiring boom Reynolds is counting on. If it doesn’t materialize, tens of thousands of families will have suffered for nothing.