Alaska’s economic woes could get much worse without extension in unemployment benefits

(Photo by Matt Buxton/TMS)

For months, policymakers and economists have warned about the impending financial troubles if Congress and the president failed to find a way to extend federal unemployment benefits as they expired at the end of July.

Now, several days into August we are no closer to resolution on this despite House Democrats passing a measure back in May that would have extended the benefits.

The consequences of this gridlock, largely caused by Republican infighting, could be disastrous for Alaska’s economy as millions of dollars in benefits—and, critically, household spending power—vanishes overnight.

According to a new report by the Alaska Department of Labor’s Economic Trends, the expiration of the federal government’s $600 add-on benefit will mean as much as $87 million a month will halt flowing in Alaska’s economy.

“The average claimant in Alaska will go from receiving about $875 a week to around $275 a week, a major reduction for the state’s economy as well as individuals,” explained the article by economists Lennon Weller and Dan Robinson, later adding, “Consequently, Alaska faces a sizable economic shock in August. … A large drop in consumer spending is certain as tens of thousands of Alaskans will simply have less to spend.”

The report breaks down the impacts of the aid from June, which is the most recent month with detailed information, and extrapolated it into August. Nearly 46,500 people, about 8 percent of Alaska’s workforce, collected a total of $126.9 million in unemployment benefits in June. Of that figure, 69% came from the federal add-on amounting to $87.2 million or about 5% of the total monthly wages paid in Alaska.

“If a loss of that magnitude seems underwhelming, keep in mind that the annual wage loss during the state’s recent recession was about 3.8 percent at its worst, from 2015 to 2016,” adds the report.

The key question here, the report notes, is whether jobs will return in significant enough numbers to offset the loss in unemployment benefits. The report notes that some jobs are returning but that it’s uneven, shaky and unlikely to replace that flow of money.

“In the short term, wages earned by those who return to work probably won’t replace a big portion of the $87 million removed from the economy when the federal benefit ends,” they wrote. “Most jobs will return eventually, but until the pandemic-related disruptions are behind us, many jobs simply won’t exist. A hotel banquet worker, for example, or a whale watching boat captain may not have the option to return to work anytime soon.”

As for returning jobs, it’s likely that retail and food service industries will continue to see disruptions as bars as restaurants have been linked to spread of the virus. Anchorage shuttered dine-in services on Monday as cases in the area spiked while the state has taken a largely hands-off approach to curbing the spread of the virus, putting the onus on local municipalities.

The report also notes that lower-income households spend a greater portion of their household income than compared to the rich, meaning the impact of lost unemployment benefits will also be uneven.

The report also breaks down the potential loss of income in different areas of the state but notes that areas that have more diversified economies could see less harm from the loss of the expanded benefits. The Anchorage economy could see as much as $34.3 million in benefits vanish. The Mat-Su Borough would be out $10.2 million, Fairbanks would be out $7.5 million, Kenai would be out $6.1 million, and Juneau would be out $3.5 million.

When we spoke to Institute of Social and Economic Research economist Mouhcine Guettabi earlier this summer, he noted that the unemployment benefits helped maintain household spending power and avert the worst of the economic pain.

“We’ve had this—call it an artificial boost to income, call it a really good support system for people that have been affected—that’s been a combination of state unemployment insurance, federal unemployment insurance and then, obviously, the economic impact payment that has cushioned the blow for a lot of the households that have lost jobs,” Guettabi said in June. “That’s expiring. My worry–in addition to the health component–is that we may be living in this artificially good period of time between now and July where the consumer is spending money, where people are going out because there’s pent-up demand and people have cash to spend because there’s been this support. If a lot of those households and people do not get called back to work between now and the end of July and we do not have another round of stimulus, then really incomes are going to fall off a cliff.”

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