How Will Arkansas’s Labor Market Change after the CARES Act?

By Caleb Taylor

How will unemployment insurance increases in the CARES Act affect the labor market in Arkansas? 

Jeremy Horpedahl, assistant professor of economics at the University of Central Arkansas, called the $600/week bonus unemployment benefit included in the law “the most significant support from the federal government for individuals suffering from the economic slowdown, much more so than the one-time $1,200 check” in “Generous Unemployment Benefits May Tempt Employers, Employees” published in Arkansas Business on March 26.

From Arkansas Business:

Depending on their previous income, Arkansas workers can collect up to $451 a week in unemployment benefits. The extra $600 will push some workers above $1,000 a week, which could be tempting for both employee and employer. “The trade-off for Arkansas is … there’s now a larger incentive for workers to ask to be laid off or for business owners and managers to lay off workers they might otherwise keep on knowing they’ll receive larger benefits,” said Horpedahl, who is also a research scholar at the Arkansas Center for Research in Economics at UCA. And there’s good news and bad news with that as well. “Fewer people at work might be good for social distancing, but increasing Arkansas’s number of unemployed could add up to a large bill for a state with decreasing tax revenue and inadequate reserves,” Horpedahl wrote in a statement to Arkansas Business.”

The Tax Foundation estimates that Arkansas’s unemployment insurance fund has enough to cover about 34 weeks of benefits, which is much better than some states like Texas that might only have enough to cover 3 weeks of benefits. But these and other estimates will ultimately depend on how many workers are laid off or furloughed.

Anecdotal evidence of this new and tempting incentive is already appearing. The Arkansas Democrat-Gazette, the state’s largest newspaper, recently asked employees to volunteer for furloughs in order to cut payroll costs. A note to employees points out that unemployment compensation could “meet or exceed” regular pay in “some cases.”

About 200 workers at Anthony Timberlands’ pine mills in Malvern and Bearden were laid off temporarily earlier this month after the law’s passage “sparked a lot of talk among workers…about unemployment checks being bigger than their take-home pay,” according to Steve Anthony, the company’s chief executive officer in an article about the layoffs in the Arkansas Democrat-Gazette on April 4th. Anthony also told Fox News that some essential employees, who could not be laid off, “might be resentful that they’re putting in 50 hours a week, and the guy sitting at home is making $300 a week more.”

Overall, Arkansas’s unemployment compensation claims as a percentage of the labor force is 7.3 percent as of April 11, according to the Bureau of Labor Statistics. This is a different statistic than the regular unemployment rate, but might give us some preview of how high the unemployment rate will be when data are finally released. Data just released by the Bureau of Labor Statistics show that Arkansas’s unemployment rate in March increased from 3.5 to 4.8 percent, but that figure is from the second week of March and does not reflect the full effects of business closures, social distancing, and the incentives of the CARES Act (which hadn’t even been introduced in Congress at that point).

For more, check out Horpedahl’s op-ed on the UCA College of Business blog entitled “Understanding Economic Data in the COVID-19 Crisis.”