Iowa Republicans want to cut jobless aid, but economists see no reason

Iowa's Republican-led Legislature is close to passing a bill that would drastically reduce the state's unemployment benefits.

• It's part of state leaders' broader push to lure unemployed Iowans back into the workforce during a labor shortage crisis.

Yes, but: The proposed cut won't likely improve workforce shortages, Peter Orazem, an economics professor at Iowa State University, tells Axios.

• The bigger issue is there aren't enough workers in Iowa — period, Orazem says.

State of play: Republican leaders, including Gov. Kim Reynolds, argue the state's long-existing 26 weeks of unemployment is too generous and should be cut to 16 weeks.

• "The safety net has become a hammock," Reynolds told lawmakers earlier this year.

Like the rest of the U.S., Iowa is still facing a workforce crisis. The state's most recent unemployment rate is at 3.5% — still higher than it was pre-pandemic at 2.6%, but lower than the nation's rate of 3.8%.

• But unemployment figures don't capture the number of Iowans who exited the workforce entirely.

Between the lines: Iowa's labor force shrunk when the pandemic started and it's remained at a lower level in comparison to the rest of the U.S.

• A part of that can be attributed to Iowa’s population. While it skews older, we also have one of the highest labor participation rates, Orazem says.
• That means prior to the pandemic, more older Iowans were likely working in comparison to a state like Florida, which has a higher older population, but retirements are more common, Orazem says.

• So when Iowans suddenly retired during the pandemic, the state experienced a more dramatic change in its labor force.

OK, but what's the solution? Changing unemployment benefits at this point is likely to have little impact, Orazem says.

• There are no longer added weekly benefits and Iowa's unemployment program averages around 50-60% of previous wages — leaving little incentive to stay on it, according to Orazem.

The state needs more people to live and work here. But every state is vying for that right now, meaning Iowa may need to look to other countries for workers.

• "And that's going to take a long time," Orazem says.