Unemployment

Baseless: MLG’s Office Claims UI Isn’t Hurting New Mexico’s Economic Recovery

Jim Thompson, Albuquerque Journal (April 19, 2021)

As businesses gear up for the July 1, 2021 opening of the state following more than a year of mandatory shutdowns, stay-at-home orders, and capacity limits, the governor’s office is playing defense against critics of New Mexico’s continued reliance of federal Unemployment Insurance (UI).

As The Conservative New Mexican pointed out earlier this month in an article titled, “New Mexico Searches for Answers to Why Johnny Won’t Work,”

“New Mexico was proud to be first in line to ask for federal assistance when the program was announced, so it shouldn’t be surprising when we’re last in line to give it up.”

Many have criticized the governor for being first at the public trough even as New Mexico ranks first in welfarefirst in federal funding dependency, and second to last in unemployment

According to Gov. Michelle Lujan Grisham’s office, the extra $300 a week in federal unemployment benefits “is not incentivizing people to stay on unemployment at the expense of finding a job.” 

“The Federal Reserve studied this specifically and found that the $300 benefit is not keeping people on unemployment longer … than they would be otherwise — ‘the value of a job significantly outweighs the benefit of temporary additional UI income.’ ” 

— Nora Meyers Sackett, Press Secretary, Office of the Governor

Not only is this not what the study found, but “the value of a job” outweighing the benefit of UI isn’t a statement of fact. Every New Mexican knows someone who either runs a business and struggles to hire or is on unemployment because they make more now than they did earning minimum wage pre-pandemic. The value of a job in fact doesn’t outweigh temporary unemployment, particularly for restaurant workers, small businesses in the service sector, and gig workers like Uber or GrubHub drivers.

The Federal Reserve study cited by Meyers Sackett backs that up.

“The CARES Act $600 weekly UI suppplement expired in July 2020. Since late December 2020, a combination of federal acts have provided an additional $300 per week in UI payments, with eligibility through September 6, 2021, for states that choose to maintain it. Based on a simple extrapolation of our regression framework, the $300 weekly supplement in early 2021 reduces job-finding rates by about half as much as the $600 supplement in early 2020. In particular, our estimates suggest that the $300 supplement reduces monthly job-finding rates by a maximum of about 3.5 percentage points (0.035).

For the first four months of 2021, job-finding (UE) rates have been averaging just under 0.25 per month. The estimated impact of the $300 supplement, at 0.035, is about one-seventh of that baseline job-finding rate. One straightforward way to think about that number is that each month in early 2021, about seven out of 28 unemployed individuals receive job offers that they would normally accept, but one of the seven decides to decline the offer due to the availability of the extra $300 per week in UI payments” (emphasis added)

 — Federal Reserve Bank of San Francisco (June 2021)

How much is one-seventh? Of New Mexico’s 76,000 people on unemployment, seven of 28 is 19,000 people getting job offers. One out of seven of them declining that offer would be 2,700 people who are on unemployment when they could be working.

And that’s an estimate based on national data. Factoring in New Mexico’s lower education rate, lower average income, and higher than average unemployment, an end of federal UI will likely result in an even more significant return-to-work ratio.

That’s not the press secretary’s only whiff.

“…[W]e are not seeing dramatic swings in unemployment in the states that have cut the $300 benefit,” Meyers Sackett alleged. “While some may try to say otherwise, such an assertion is not based in the reality of the job market.”

Some have said otherwise, including The Wall Street Journal, which noted that a total of eight states have effectively cut off federal UI as of June 19, with ten more states following suit this weekend.

“The number of individuals who received unemployment benefits decline by 13.8% by the week ending June 12, compared to mid-May, in states where governors explicitly said that enhanced benefits would end in June, based on an analysis by Jefferies LLC economists.

This figure compares to a 10% decline in states that are ending benefits in July, and a smaller 5.7% decline in states that intend to keep the benefits until the funding ends in September.”

-WSJ (June 28, 2021)

The Journal’s report assumes that workers acted in anticipation of their governors ending federal benefits, which may have had an effect on some individuals, but there is no way to analyze the economic effect on unemployment with data from six business days in eight states. 

Which further undermines Meyers Sackett’s claims. Indeed, we’re not seeing “dramatic swings in unemployment in the states that have cut the $300 benefit” because last week was their first full week off federal UI.

But based on the Federal Reserve study she cited, we can expect to see noticeable swings in unemployment when federal UI ends in September 2021. 

As the financial blog ZeroHedge predicted, “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 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.”

We’re starting to see the results of that experiment. But with New Mexico ranked 49th in unemployment (at 8.0%, just ahead of Hawaii at 8.1%), doing any worse than we already won’t make much of a difference. 

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