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Just over a year ago, generous unemployment benefits were being blamed for creating a shortage of workers, as employees laid off during COVID were supposedly lounging at home living on the dole.
While there were undoubtedly a few instances of that, recent economic data from Minnesota strongly suggests that generous and easily obtained unemployment benefits are not a disincentive to work and, in fact, may actually increase the efficiency of the workforce.
Minnesota, which has generous unemployment benefits in comparison to most states, currently has the lowest unemployment rate in the country. Indeed, the state’s unemployment rate, at just 1.8 percent, is reportedly the lowest unemployment rate in any state since records have been kept by the federal Bureau of Labor Statistics.
Minnesota also has the third-highest workforce participation rate in the nation, at 68.7 percent.
Despite generous benefits, it’s clear that Minnesotans prefer to work. The roughly 30 percent of the population not currently employed is made up almost entirely of kids too young to work, retirees and the disabled.
Workforce participation has increased modestly in Minnesota since the expiration of the supplemental unemployment benefits, enacted at the beginning of the COVID pandemic, but that’s due primarily to the fact that most workplaces have gone back, or at least have tried to go back, to normal staffing levels as the pandemic has dragged on. As many economists had predicted last year, the phase-out of the supplemental benefits did little or nothing to ease the worker shortage, which is more acute than ever in Minnesota right now.
By most measures, Minnesota’s economy is creating the best of times for workers, even as businesses are struggling to find help. Wages have increased substantially, and in many traditionally lower-paying service sectors, wage growth is outpacing inflation, leaving lower-wage workers in better shape financially than at any time in recent history.
The one area where Minnesota’s economic performance has been decidedly mediocre over the past year has been in new job creation. But that’s not due to lack of interest on the part of businesses. Minnesota could have easily created twice as many jobs over the past year had the state had the workers to fill them.
One other interesting statistic from August’s jobs data is that Minnesota currently has the highest percentage of unemployed workers receiving unemployment benefits of any state, and by a long shot. That’s undoubtedly due to the fact that it’s relatively easy to access benefits in Minnesota and it’s worth making the effort because the benefits are relatively generous.
No doubt the same folks who argued against the supplemental benefits last year would complain about the fact that 70 percent of unemployed workers in the state are receiving benefits. First, it’s worth noting that with an unemployment rate of just 1.8 percent, we’re talking about a relatively tiny number of actual unemployed workers. In either case, economists who study such things would point out that Minnesota’s unemployment compensation system provides those who do lose jobs (which happens even in a robust economy) with the opportunity to makes ends meet while they look for new work in an area that matches their skills and maximizes their future earning potential. That’s not just good for workers, it’s good for employers, too, because it also maximizes the productivity of the state’s workforce. Society benefits as well when we can prevent unemployment from pushing individuals or families into financial hardship, which comes with its own long list of downstream problems.
Minnesota has helped its citizens and its businesses by making its unemployment compensation system easy to access. That’s in contrast to many other states, particularly in the South, where states have intentionally made the process cumbersome and the benefits stingy, ostensibly to save money and coax workers quickly back into jobs. Unfortunately, political leaders in too many states still believe that punishing workers who lose their jobs is the best way to get them back into the labor force. Unfortunately, it’s usually the best way to push them and their families into low-paying, dead end jobs and long-term poverty or low-income status.
That’s one reason why southern states have poverty rates in the 17 to 19 percent range, while Minnesota is ranked 48 in poverty, at just 9.3 percent. The fact is, Minnesota ranks at or very near the top in almost every category where a state would want to rank highly and near the bottom in categories, like poverty, where the lowest ranking is best. Minnesota, it turns out, has been remarkably successful pursuing policies that provide opportunity to workers and the kind of business support that businesses actually want and need. It’s not just an accident that Minnesota does so well. It’s had a long history of sensible, progressive policies that have made the state’s economy exceptionally strong.
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