South Carolina, Montana declining federal unemployment funds 'a huge mistake,' economists say

South Carolina and Montana residents will be cut off from federal pandemic unemployment benefits next month, with Republican governors in each state claiming the payments have led to a workforce shortage. Economists say that's not the case.

"Employers are just angry that they are unable to find workers at relatively low wages," Heidi Shierholz, a senior economist and director of policy at the Economic Policy Institute, said in an interview. "The jobs being posted are more stressful, more risky, harder jobs than they were pre-COVID. ... When the job is more stressful, then it should command a higher wage."

These two states will be the first to end participation in the unemployment enhancement programs, as both states are attempting to transition back to pre-pandemic unemployment insurance eligibility and benefits by the end of June.

Unemployment recipients will lose an extra $300 per week, and contractors and gig workers will lose their access to the Pandemic Unemployment Assistance program. In March, 120,783 South Carolinians still were looking for jobs, according to the state's Department of Employment and Workforce. In Montana, there were about 25,000 people filing unemployment claims, according to the state's Department of Labor. There are about 9.8 million unemployed workers across the U.S.

"In many instances, these payments are greater than the worker's previous paychecks," South Carolina Gov. Henry McMaster said in a statement. "What was intended to be a short-term financial assistance for the vulnerable and displaced during the height of the pandemic has turned into a dangerous federal entitlement."

In July 2020, a study by the National Bureau of Economic Research found that two-thirds of laid-off workers were making more off unemployment than their typical wages.

Montana Gov. Greg Gianforte also announced that the return to pre-pandemic benefits was part of a "severe workforce shortage," and that the new measures will "incentivize" Montanans.

However, the number of Americans submitting unemployment claims on the week of May 1 has fallen to a pandemic-low of 498,000, according to the U.S. Department of Labor. And in March, about 770,000 jobs were added after initial reports of more than 900,000.

At a press conference on Friday, President Joe Biden responded to the latest jobs report that showed only 266,000 jobs had been added to the economy in April, compared with a forecast of closer to 1 million.

"You might think that we should be disappointed, but when we passed the American Rescue Plan, I want to remind everybody, it was designed to help us over the course of a year -- not 60 days, a year," Biden said. "We never thought that after the first 50 or 60 days everything would be fine."

Shierholz told ABC News that after the $600 bonus on unemployment expired at the end of July, "You should have seen a bump up in employment, and you can't see that in the data so it just points to that it wasn't really causing the labor supply effect. It's just difficult to imagine that something half that big is having any effect now."

But a report from the Economic Policy Institute shows that a more likely reason some employers aren't attracting workers is that many of these businesses are offering too-low wages. In a true labor shortage, the report states, wages will rise as does competition among employers. But wages aren't growing -- at least not quickly enough.

William E. Spriggs, an economist and professor at Howard University, said in an interview with ABC News that there is no data to prove that unemployment checks are preventing Americans from returning to work.

"There's no job shortage, in terms of workers. There's a wage shortage," said Spriggs, adding that research shows many employers "want to pay rotten wages and have rotten hours."

Gianforte said that a "return-to-work bonus" of $1,200 will be paid to people who rejoin the labor force and maintain employment for at least one month. McMaster did not mention the bonus in his announcement. The federal funding for the return-to-work program is part of the $1.9 trillion American Rescue Plan.

Experts told ABC News declining to take federal money is going to have a deep effect on the living standards of residents and their families, and likely will worsen those states' overall economies.

"The idea that states are just going to forego that and allow all that money to be sucked out of their economy is just terrible economics," Shierholz said. "I just deeply hope that you don't see more states following this path because it's a huge mistake."