Hicks: Ending the Pandemic UI Was a Rare Mistake by This Administration

In May, Governor Holcomb’s announced an early end to pandemic unemployment assistance. This decision was a rare policy mistake for an administration that had spent more than a year handling COVID with admirable attention to data and good judgement. The mistake was also unusual in that the predictable result was economic damage to those Hoosiers who were most affected by COVID. This was a marked departure from the administration’s more than yearlong focus on the health and wellbeing of those most impacted by the pandemic.

Fortunately, the courts reversed that decision and payments resumed earlier this month. Labor markets are slowly improving, so fewer families would’ve been substantially harmed by the payment turbulence. Ultimately, the decision to end pandemic unemployment assistance early will be only a footnote to an administration that performed commendably through the worst crisis Indiana faced since the Civil War.

The sole reason I write about the topic is that this episode illustrates how inchoate Indiana’s workforce decision process has become. Moreover, the fiasco with pandemic unemployment assistance illuminates the folly of the Division of Workforce Development’s culture of supporting businesses at the expense of taxpayers as a whole. Hopefully, this incident will lead to a more mature approach within the administration and the DWD.

The CARES Act passed in March 2020, authorizing supplement types of unemployment insurance to self-employed persons. The act also provided an additional $300 per week in UI payments. The payments were later extended until mid-autumn of this year. The purpose of the payments was to bolster the pandemic-affected economy and support the minority of families affected by COVID job losses. These pandemic payments came solely from federal tax dollars, so state tax coffers were unaffected.

The pandemic unemployment insurance payments were as close to a ‘free lunch’ for Hoosier taxpayers as anything we’ll ever receive. So, it is puzzling how a provision signed by President Trump and unanimously passed by the Senate would become target of partisan opposition in less than a year. Of course, this is because by April 2021, many businesses complained about a looming labor shortage presumably caused by generous pandemic unemployment payments. But even more mystifying is how anyone could’ve examined labor force data in April or May and concluded there was a labor shortage in Indiana.

By the end of April, Indiana’s economy had stopped growing. Over the first four months of the year, employment nationwide grew by a healthy 1.1 percent, but Indiana’s employment actually dropped by one-tenth of a percent (0.1%). From January through April, the state experienced an employment decline of more than 3,400 workers. This decline was broad-based, leaving Indiana as one of the worst-performing economies in the nation. This alone should’ve been strong evidence that something other than the lack of workers was weighing on the Hoosier economy.

In the days leading up to the May decision to suspend pandemic UI, data was flowing in that didn’t just challenge the notion of a labor shortage, but also absolutely crushed that claim. From the peak of 2021 UI in mid-January through mid-May, the state’s UI system reported that almost 170,000 workers left the system. So, the decision to terminate the pandemic UI payments was made after four months of declining employment, when a whopping 170,000 Hoosier workers had already lost benefits.

Labor markets are dynamic, and so data on workers, wages and available jobs are sometimes hard to evaluate. For example, in a normal four-month period, we’d expect maybe 25,000 Hoosiers to retire. Accounting for some of these 170,000 workers who were leaving UI, backfilling recent retirements and adding the loss of overall employment means that from January to early May, just under 150,000 workers lost benefits without finding work.

This means that just as Indiana announced it had a ‘labor shortage’ and would end the pandemic UI early, the state’s own labor market data made clear there was a ‘labor surplus.’ But there was even more data nationwide that suggested little or no evidence of a labor shortage. Wage growth in early 2021 was also muted. As the decision to end UI was made in May, wage growth nationally beat inflation for only two of the six previous months. Moreover, ‘help wanted’ ads in April and the first three weeks of 2021 were only 12 percent higher than 2018, the last strong year of economic growth in the state.

The wholly unvarnished truth of the matter is that when Governor Holcomb announced the end of pandemic UI, there was absolutely no credible evidence from labor markets of a shortage of workers. Sure, there were businesses complaining about the difficulty of finding workers. No doubt many of them did and still do find it difficult to attract workers. However, those claims just cannot outweigh piles of contradictory evidence.

Businesses are taxpayers, and businesses deserve to be heard by elected officials, but when claims by businesses can be easily refuted by the state’s own data, their concerns cannot be taken seriously enough to guide public policy. The culture of state government that values business voices over all other considerations is a bad one for Hoosier taxpayers, and, more importantly, it is bad for business. This episode suggests a broad reevaluation.

It is worth noting that in the weeks since the May announcement to end pandemic UI, the very poor justification for that decision has actually deteriorated. Between the January highs and the end of June this year, the UI rolls shed a full 237,000 workers, while Indiana businesses created only 21,300 jobs. Indiana’s economy did a bit better in May and June than over the previous six months. Still, Indiana has grown employment at less than 40 percent the national rate this year.

The claims of a labor shortage in May turned out to be patently false, and in the month that UI ended, the state’s unemployment rate actually rose. I don’t know what advice the governor received from the Division of Workforce Development when it came to ending this program. I’m hopeful that somewhere within that agency, someone argued that the data didn’t warrant such a decision. If not, it is time to change both culture and staff.