South Carolina becomes the second state to cancel federal unemployment benefits

South Carolina plans to stop some of its federally-funded unemployment benefits to address "ongoing workforce shortages," according to the South Carolina governor's office, leaving many out-of-work residents without any support at all.

The state joins Montana, which announced a similar move this week.

"This labor shortage is being created in large part by the supplemental unemployment payments that the federal government provides claimants on top of their state unemployment benefits," Gov. Henry McMaster said in a statement on Thursday. "What was intended to be a short-term financial assistance for the vulnerable and displaced during the height of the pandemic has turned into a dangerous federal entitlement, incentivizing and paying workers to stay at home rather than encouraging them to return to the workplace."

Starting June 30, jobless South Carolinians 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.

Montana plans to cancel those benefits and programs on June 27.

"South Carolina Gov. McMaster has now made a trend out of Montana's terrible policy decision to drop out of pandemic benefits," Andrew Stettner, an unemployment insurance expert and senior fellow at the Century Foundation, told Yahoo Money. "Make no mistake about it, South Carolinians will now have no other means of support, including jobless small business owners, gig workers, and the long-term unemployed."

"South Carolinians will all suffer and they will have no one else to blame but their Governor," Stettner added.

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

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“Nearly every sector in our economy faces a labor shortage,” Montana Gov. Greg Gianforte said in a statement on Tuesday. “The vast expansion of federal unemployment benefits is now doing more harm than good.”

The federally-funded unemployment programs run through September 6 nationwide. 

The cancellation of this support would cost workers in Montana and South Carolina 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 $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.

‘Limited evidence of work disincentives'

Several papers have established that the extra $600 in benefits distributed earlier in the pandemic had limited labor supply effects and likely didn’t disincentivize work, including one by the National Bureau of Economic Research and another by Yale University. The current supplemental benefit is worth half of what those papers reviewed.

“The 100% federally-paid unemployment benefits have boosted spending and contributed to the strong economic recovery,” Stettner said. “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."

Montana and South Carolina are the only two 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.

As a way to incentivize workers to return to work, Montana is offering 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," Gianforte said. "Our return-to-work bonus and the return to pre-pandemic unemployment programs will help get more Montanans back to work."

South Carolina hasn't announced a return-to-work incentive once the federal benefits are cut.

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

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