Iowa's unemployment experiment: Will cutting benefits bring people back to work?

All eyes will be on Iowa and other Republican-led states these next few months to see if an early exit from federal unemployment benefits truly nudges people back to work.

Why it matters: Gov. Kim Reynolds decided to curtail the weekly $300 supplemental aid starting Saturday — making Iowa one of the earliest states to try and see if it moves the needle in labor participation.

• "This is going to be one of the largest experiments in the U.S. labor market that I've ever heard of," Peter Orazem, an economics professor at ISU., told Axios.

The big picture: The lack of urgency to return to work is puzzling and contradicts trends from past recoveries, Orazem said.

• The U.S. experienced its fastest wage growth in the last year since 1998.
• 559K jobs were added in May, but employment marginally increased in comparison.

What they're saying: People may stay at home because of lack of child care or potential virus exposure, but Iowa's early school reopenings and vaccinations should have abated that, Orazem said.

• "The one constant has been that unemployment benefits are generous. So that's the last possible explanation that hasn't been changed," Orazem said.

The other side: An extra $300 a week isn't enough incentive for people to stay at home, said Paul Rottenberg, president of Orchestrate Hospitality.

• He believes the pandemic exacerbated Iowa's existing worker shortage and it's more severe now because of new jobs in booming industries like construction and warehouses.

• "They're just not interested in coming back," Rottenberg said.

Workers are also now in a position where they feel more empowered to choose jobs they genuinely like, said Mike Draper, owner of Raygun.

• "I think people are just assessing what they do during the day and how they want to be treated and what kind of environment they want to work in," Draper said.

Between the lines: If Iowa wants enough workers to fill jobs long-term, Rottenberg said the U.S. needs to reform its work visa and immigration policies.

• "We're a country that needs a labor workforce," Rottenberg said. "We've got to figure out how to have legal immigration."