Unemployment benefits are competitive with most states' average wages - and it could explain why Americans aren't rushing back to work

• The $300 boost to unemployment benefits makes the payment competitive with the average wage in 47 states.
• In three states, unemployment insurance even surpasses the typical wage.
• This suggests the federal boost to UI could be acting as a shadow minimum wage, driving up the cost of hiring.

The federal government significantly expanded unemployment benefits for much of the pandemic as millions of Americans lost their jobs amid lockdowns. Mass vaccinations and a reopening economy are now throwing the benefits into a new light - as a shadow minimum wage.

American consumer spending has far outpaced job growth amid reopening, and Friday's disappointing April jobs report ignited a furious debate over whether expanded unemployment is helping or hurting.

Democrats maintained their support for the $300 federal boost to unemployment insurance, arguing the benefit serves as a critical lifeline for millions of jobless Americans. Republicans came out in force against them, slamming the program as a disincentivize against work and paying Americans to stay unemployed.

Insider's calculations show something in between: that the federal $300-per-week boost to state unemployment is only higher than the average wage in three states, but it's competitive in the other 47. Additionally, the benefits help Americans save on the costs of childcare and transportation that typically come with employment.

The three states where UI exceeds the average wage - North Dakota, Montana, and Wyoming - are also some of America's most sparsely populated.

UI might not dissuade Americans from work, but it could encourage the unemployed to hold out for higher-paying jobs. And while its immediate future is endangered, this period of enhanced benefits could shift how people think of work and compensation for years to come.

The future of the shadow minimum wage

The enhanced unemployment benefits may not stick around for long in Republican-governed states. Sixten states with GOP governors are moving to end the federal benefit early in a bid to accelerate hiring, and more may follow. Senate Minority Leader Mitch McConnell blamed the supplement for last month's slow job growth in Thursday remarks.

"What I hear from businesspeople, hospitals, educators, everybody across the state all week is, regretfully, it's actually more lucrative for many Kentuckians and Americans to not work than work," he said.

Many companies are already lifting wages to pull in more workers as reopening fuels stronger demand. Chipotle and McDonald's raised pay in the past week - and both plan to hire tens of thousands of workers in the coming months.

To be sure, competition from federal UI is temporary and doesn't provide the benefits that can come with employment. Health insurance, 401(k) matching, and education assistance can add to the appeal of a job's steady income.

In red states where officials are retracting the benefit, businesses will have less incentive to lift their wages and compete with the aid program. Conversely, firms in blue states - where the supplement will likely last into the fall - could face pressure to improve pay as competition for new workers heats up.

As governments relax economic restrictions, businesses will have to choose between raising wages and missing out on a spending boom.

"Are you going to just open half of your restaurant because you can't hire people, or are you just going to pay a little bit more to make sure that you attract workers?" Aneta Markowska, chief economist at Jefferies, told Insider on Friday. "The alternative is losing market share, and that's a lot worse [than lifting wages]."

Other experts see the September expiration of the UI boost driving most of the hiring rebound. Americans who earned less than $32,000 before losing their jobs "would be better off in the near term" to collect UI payments until they lapse, Bank of America economists said earlier this month. Some 2.5 million Americans will rejoin the workforce as COVID-19 fears fade and the UI boost expires, they added.

There's "some truth" to the argument that UI disincentivizes work, but other factors play a role, Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said Sunday on CBS' "Face The Nation." Childcare shortages are keeping many jobless parents at home, and unvaccinated Americans still face considerable health risks from working in-person.

"As the vaccine continues to penetrate, as the virus continues to slow down, schools reopen and people regain their confidence," Kashkari said. "Those things should get better, which should lead to strong growth in the second half of the year and strong labor market recovery, I hope."