US Set For Epic Labor Market Experiment: Red States Vs Blue States

According to JPMorgan’s Daniel Silver, as of this moment some 23 – all republican – states have announced at least some form of early reduction in pandemic-related unemployment insurance benefits ahead of the September expiration at the federal level. These programs, he suggests, are likely limiting labor supply, generating a potential economic argument for ending these programs early.

A glance at the following chart – which shows the number of US job opening vs the number of Americans who remain on some form of Pandemic unemployment benefit, would suggest that Silver is right.

So, while the left are desperately gaslighting that this is a skills or geographic mismatch, the chart above makes it clear that paying people to stay home is not good for growth (or social stability).

Which is why 23 (Republican) states have listened to their business owners and started to cut those benefits. In fact, as Mike Shedlock notes, that means around 3.5 million Americans will come off Pandemic emergency benefits in the next few weeks.

And since Democrats will likely not end UI benefits any time soon – or ever, if they could –  this sets up the US economy to become an epic real-time economic experiment, one where everyone can keep track of the unemployment across in Red states (most of which have ended their UI benefits), and blue states where claims will keep potential workers at home, pressuring unemployment rates.

As noted above, all of the 23 states announcing early-UI benefit terminations have Republican governors and as is clear from the charts below, many of these states have tighter labor markets and stronger earnings growth (naturally, not all).

So the trade off appears to be one of political pandering vs practical economics – lower unemployment rates in Red states even as the hoped for tradeoff – higher wage growth – is largely missing, with average hourly earnings in red states also slightly higher on average.

By way of early confirmation of our thesis that government handouts are repressing the recovery by encouraging people not to work, according to an analysis published this week by job site Indeed, job searches jumped by 5% the day each state announced its intent to pull out of the federal programs.

In May, job search activity on Indeed increased, relative to the national trend, in states that announced they would end federal UI benefits prematurely.

We will be closely watching the unemployment rates of the red and blue states going forward as a real-time test of whether paying people to stay home (something not even the USSR did) is indeed the best way forward for Americans… or if it will create an idiocracy.