States with Republican governors are leading the recovery from the Covid-19 economic shock, complicating President Joe Biden’s push for a new sweeping infusion of federal aid.
Of the 15 states that have returned to pre-pandemic levels of economic activity, 12 are led by Republican governors, Federal Reserve data shows. Of the 10 states reporting the lowest levels of activity since January 2020, seven — including New York, Pennsylvania and Illinois — are run by Democratic governors.
Red states are also reporting lower unemployment numbers.
Businesses, economists and policymakers are divided over whether conservative governors’ policies on jobless benefits and Covid-19 restrictions — many of them chose not to issue stay-at-home orders at all — are actually helping their economies or if their states’ industries simply didn’t fall as far behind during the pandemic.
Still, the uneven recovery and the lackluster job growth reported in both April and May have given Republicans ammunition to repudiate Biden’s expensive aid plans. They’ve also ignited concerns among conservatives that the federal assistance — especially the $1.9 trillion American Rescue Plan that passed without GOP support in March — should have focused more on who needed help the most.
“Across the board, there could have been a lot better use of the funds being more targeted,” Rachel Greszler, an economist at the Heritage Foundation, said. Congress should have linked unemployment insurance to workers’ earnings or allowed states to use federal aid to dole out their own benefits based on what the labor market required “in the ways that they thought would work best for them,” she said.
The seven states that chose to not issue a stay-at-home order last year — Arkansas, Iowa, Nebraska, North Dakota, South Dakota, Wyoming and Utah — were all led by GOP governors.
Republican-led states were also early to ease pandemic business restrictions and mask mandates: Missouri, Montana, Iowa and Alaska were some of the first states to peel back their business requirements in January and February. Texas, Arizona, Arkansas, New Hampshire and Wyoming followed in March.
Of those states, Montana, New Hampshire, Arkansas, South Dakota, Utah, Missouri and Nebraska returned to pre-pandemic levels of economic activity in April and reported lower unemployment than the national 5.8 percent rate in May.
By comparison, states that still have some coronavirus restrictions in place, including California, Connecticut and Hawaii, saw the highest rates of unemployment in the country in May and were still producing less in April than they did pre-pandemic.
Washington lawmakers sent direct checks to millions of middle- and lower-income Americans and supplemented state unemployment benefits with extra weekly payments and coverage for workers traditionally ineligible for jobless aid. They also doled out $1 trillion in forgivable government-backed loans to small businesses under the Paycheck Protection Program, initially on a first-come, first-served basis.
Other economists question whether Congress could have maneuvered as precisely as Greszler suggested to rescue the economy in the beginning, facing a flood of business closures and tens of millions of layoffs caused by the pandemic health restrictions.
“There isn’t a lot of nuance that you can use in policy when you’re trying to get money out the door as quickly as possible and adjust for the local situations for every worker in the state,” said Daniel Zhao, senior economist at Glassdoor. “It’s very difficult to get aid out to everybody who needs it at the same time, and in a way that was actually targeted through individual situations.”
The uneven nature of the recovery partly reflects the diversity of state economies. States like New York, California, Hawaii and Nevada that rely heavily on tourism, as well as food and accommodations, are some of the deepest in the economic hole and have the longest way to go, according to the Federal Reserve’s April State Coincident Index, which estimates economic conditions based on local employment and wage data matched to states’ GDP trends.
As of April, Hawaii’s economic activity is 13 percent below where it was in January 2020, according to the index. Activity in Nevada and New York is also still down near 10 percent compared to before the pandemic. Florida, down just 1 percent, is doing better.
But states including Utah, Idaho, South Dakota and Nebraska that rely largely on food processing and manufacturing — industries deemed essential and required to stay open during the pandemic — are getting back to normal much more quickly.
“What we’re seeing is the states that were down the most at the beginning are still down the most, and those were basically the states that rely most on travel,” said Michael Ettlinger, founding director of the Carsey School of Public Policy at the University of New Hampshire. “There’s just more destruction, if you will, in those states, and it’s just going to take longer to come back.”
The edge that GOP-led states such as Georgia, Mississippi, Arizona, and Missouri enjoy in rebounding from the pandemic has fueled Republican attacks against Biden’s policies.
More than two dozen GOP governors have moved to end supplemental unemployment benefits funded by the federal government, citing labor shortages they say are triggered by the generosity. In Congress, Republican lawmakers are using a similar argument against Biden’s plans to spend $4 trillion shoring up the nation’s infrastructure and expanding social programs.
“Our focus should be rebuilding the economy as quickly as possible, not subsidizing it,” said Sen. Mike Rounds (R-S.D.), who cited the extension of unemployment benefits as a reason for voting against an aid package pushed through by Democrats in March.
Some economists say it’s unclear if generous unemployment benefits are a factor keeping jobs from being filled.
A June analysis from the U.S. Chamber of Commerce itself found the ratio of available workers to job openings is about what it was pre-pandemic. Before Covid, “businesses were struggling to fill openings because the available workers lacked the skills businesses needed,” senior economist Curtis Dubay wrote. “That issue persists now.”
And a May analysis from the hiring website Indeed’s chief economist, Jed Kolko, found that job search activity in states ending the federal benefits saw a short, temporary jump on the platform shortly after governors announced they would do so.
Economists, as well as the Biden administration, also say issues such as continuing day care struggles for parents, lingering fear of contracting the virus, and an economy that seems like it has gone from zero to 60 in a matter of weeks are probably having the strongest effect.
“We’ve got this kind of race to the bottom, state-after-state, with Republican governors … ending benefits, and frankly, misleading people,” Senate Finance Chair Ron Wyden (D-Ore.) said. “They tried to make a big deal out of saying we’re cutting the $300 extra. That’s just not true. They’re cutting extra a week, they’re cutting the gig workers out, if someone has exhausted the state benefits.”
With about 4 million Americans — disproportionately workers of color and women — facing “an income practically of zero … that makes the need for federal reform much more serious,” he said.
“This crazy quilt of state systems that offer differing levels of data, unemployment benefits and approaches on reopening to me highlight the need, the urgency of fundamental reform,” Wyden said.
He’s advocating for an overhaul of the unemployment system that would unite all states under one benefits infrastructure and create automatic triggers linking benefits to economic conditions, among other things.
Senate Majority Leader Chuck Schumer and Wyden last year proposed extending the jobless benefit program until a state’s unemployment rate fell below 6 percent, but Republicans were hesitant to support a long-term extension of taxpayer-funded unemployment aid.
If Congress had enacted that proposal last July, 27 states would currently have a low enough unemployment rate to phase out the extra $300 in extra benefits under the program.
“Hopefully what this drives is a conversation after the pandemic is over on how to improve our safety net,” Zhao said, “not just in terms of expanding it but also making sure that it’s actually reaching the people it needs to and reaching them quickly when help is needed.”