In May, Governor Holcomb announced an early end to the pandemic unemployment benefits. That decision was a rare political mistake for a government that had spent more than a year handling COVID with admirable attention to data and good judgment. The flaw was also unusual in that the predictable outcome was economic damage to the Hoosiers hardest hit by COVID. This marked a marked departure from the government’s more than a year-long focus on the health and well-being of those hardest hit by the pandemic.
Fortunately, the courts overturned this decision and payments resumed earlier this month. The labor markets are slowly improving, so fewer families would have been significantly harmed by the payment turmoil. Ultimately, the decision to end pandemic unemployment benefits early will only be a footnote to a government that has done commendably in the worst crisis Indiana has faced since the Civil War.
The only reason I’m writing on this topic is because this episode illustrates how inconsistent the decision-making process has become for Indiana employees. Additionally, the pandemic unemployment relief fiasco highlights the stupidity of the human resource development department’s culture of helping businesses at the expense of taxpayers as a whole. Hopefully this incident leads to a more mature approach within the administration and the DWD.
The CARES law passed in March 2020 allows the self-employed to take out additional forms of unemployment insurance. The law also provided for an additional $ 300 per week in UI payments. The payments were later extended to mid-autumn this year. The purpose of the payments was to boost the pandemic-hit economy and support the minority of families affected by COVID job losses. These pandemic payments came entirely from federal tax dollars, so state tax coffers were not affected.
Pandemic unemployment insurance payments have been as close as anything we will ever get to Hoosier taxpayers. So it is puzzling how a provision signed by President Trump and passed unanimously by the Senate would become a target for partisan opposition in less than a year. This is of course due to the fact that by April 2021, many companies were complaining of an impending labor shortage, which was presumably caused by generous pandemic unemployment benefits. But even more mysterious is how someone could have examined the workforce data in April or May and concluded that there was a labor shortage in Indiana.
By the end of April, Indiana’s economy had stopped growing. In the first four months of the year, employment grew a healthy 1.1 percent nationwide, but Indiana employment declined a tenth (0.1 percent). From January to April, the state saw employment fall by more than 3,400 workers. That decline was broad-based, making Indiana one of the worst performing economies in the country. That alone should have been strong evidence that something other than labor shortages was weighing on the Hoosier economy.
In the days leading up to the decision in May to suspend the user interface for the pandemic, data poured in that not only challenged the notion of a labor shortage, but absolutely countered that claim. From the peak of the UI in 2021 in mid-January through mid-May, the state’s UI system reported that nearly 170,000 workers had left the system. So the decision to stop pandemic UI payments was made after four months of falling employment, when a whopping 170,000 Hoosier workers had already lost their services.
Labor markets are dynamic, making data on employees, wages and available jobs sometimes difficult to interpret. For example, over a normal four month period, we would expect around 25,000 Hoosiers to retire. Adding some of those 170,000 workers who left UI, the replenishment of recent retirements, and the loss of overall employment, it meant that from January to early May, nearly 150,000 workers lost their benefits without finding a job.
This means that just as Indiana announced it had a “labor shortage” and the UI pandemic was ending prematurely, the state’s own labor market data made it clear there was a “labor surplus.” But there was more data nationwide that suggested little or no evidence of labor shortages. Wage growth in early 2021 was also subdued. When the decision to end the UI was taken in May, wage growth across the country outpaced inflation in only two of the previous six months. In addition, the “Wanted for Help” advertisements in April and the first three weeks of 2021 were only 12 percent higher than in 2018, the country’s last strong financial year.
The completely unvarnished truth is that there was absolutely no credible evidence of a labor shortage in the labor markets when Governor Holcomb announced the end of the UI pandemic. Sure, there have been companies that have complained about the difficulty of finding workers. No doubt many of them have had and are having difficulty recruiting workers. However, these claims simply cannot outweigh a bunch of conflicting evidence.
Corporations are taxpayers and corporations deserve to be heard by elected officials, but when corporate claims are easily refuted by the state’s own data, their concerns cannot be taken seriously enough to guide public order. The culture of state government, which puts the voices of business above all other considerations, is bad for Hoosier taxpayers, and more importantly, it’s bad for business. This episode suggests a major reassessment.
It’s worth noting that in the weeks since the May pandemic UI announcement to end, the very poor rationale for that decision has actually worsened. Between the January highs and late June this year, UI roles lost a whopping 237,000 workers, while Indiana companies only created 21,300 jobs. Indiana’s economy performed slightly better in May and June than in the previous six months. Still, Indiana has increased employment less than 40 percent of the national rate this year.
Claims of a labor shortage in May turned out to be blatantly false, and in the month the UI ended, the state’s unemployment rate actually rose. I don’t know what advice the governor received from the human resource development department when it came to ending this program. I hope someone somewhere within this agency has argued that the data does not warrant such a decision. If not, it’s time to change both the culture and the staff.
Michael J. Hicks, PhD, is the director of the Center for Business and Economic Research and the George and Frances Ball Distinguished Professor of Economics at Ball State University’s Miller College of Business.
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