The Labor Department determined it can’t legally stop states from opting out of pandemic-era unemployment programs supporting millions of Americans, according to an agency official.
The labor bureau also can’t keep federal unemployment benefits flowing to affected individuals via an alternative mechanism, the official said.
“We don’t have the legal authority,” according to the official, who spoke on condition of anonymity.
Twenty-five states announced their intent to withdraw early from federal programs that have offered income support to the jobless since the early days of the Covid pandemic.
The withdrawal will affect roughly 4 million people — about 25% of all Americans receiving benefits.
The states, all led by Republican governors, are ending a $300 weekly supplement to state benefits. Most are also stopping aid to the long-term unemployed and self-employed, gig and other workers who don’t typically qualify for state assistance.
More from Personal Finance:
As ‘meme stocks’ surge, what investors should watch out for
Congress wants to make more changes to the U.S. retirement system
Why student loan forgiveness could still happen
Four states — Alaska, Iowa, Mississippi and Missouri — are exiting the programs as early as Saturday. The rest are doing so through July 10. The aid was supposed to last until Labor Day.
The states claim enhanced benefits are creating a labor shortage, offering an incentive to stay home instead of work. Critics of the moves say the benefits aren’t a big contributor to any labor-supply issues; they think temporary pandemic factors like ongoing health risks and child-care duties are more to blame.
Labor Department intervention
Sen. Bernie Sanders, I-Vt., and the National Employment Law Project, a worker advocacy group, last month petitioned U.S. Labor Secretary Marty Walsh to intervene on behalf of affected workers.
They argued Walsh has the legal authority to prevent the loss of benefits for a subset of individuals — self-employed, gig and other workers collecting Pandemic Unemployment Assistance — due to wording in the CARES Act, which created the program. (It appears the same flexibility wouldn’t apply to other programs.)
Such an intervention would keep aid flowing to about 1.6 million people, according to an estimate from Daniel Zhao, a senior economist at Glassdoor, a job and recruiting site.
States had two options: The Biden administration could require states to continue paying PUA benefits or enlist other states to administer the funds instead, according to the National Employment Law Project letter.
The Labor Department reviewed the letters, but ultimately determined there are legal and practical issues preventing its intervention.
“I think it’s a legal gray area,” said Andrew Stettner, a senior fellow at The Century Foundation, a progressive think tank. “But [the Labor Department’s] position is an understandable position for them to take.
“We think there’s an argument to be made, if they want to stretch the law,” he added. “But they’re not choosing to stretch the law in that manner.”
The White House didn’t return a request for comment. A spokesperson for Sanders also didn’t respond to queries.
“We remain confident in our understanding that this cruel move by 25 Republican governors to end vital pandemic aid early violates the CARES Act, and are extremely disappointed in U.S DOL’s decision to not enforce the law accordingly,” said Nicole Marquez, director of social insurance at the National Employment Law Project, in an e-mail.
The organization hopes to continue to collaborate with the Labor Department on other ways to help these workers in the ongoing crisis, Marquez added.
The federal government sets minimum standards for state unemployment systems. It enforces these rules via a tax regime — businesses would pay higher taxes in states that don’t comply with the federal rules.
(Businesses would pay a 6% federal tax, instead of 0.6%, on the first $7,000 of employee wages — or, $420 per worker instead of $42.)
But no such penalty or enforcement mechanism exists relative to the pandemic-era PUA program, the labor official said.
The Labor Department could opt to withhold administrative funds from the states exiting federal programs, but that would likely harm workers who continue to apply for and receive aid, the official said.
From a practical perspective, the Labor Department wouldn’t know whom to pay even if other states stepped up to administer benefits instead, the labor official said. That’s because the bureau doesn’t get identifying information on benefit recipients from states, meaning the agency would have to try forcing states to share that data.
It would be difficult to require PUA recipients to reapply for benefits to skirt the data issue, Stettner said.
