Budget & Tax

Curtis Shelton | June 10, 2021

Stitt’s decision to incentivize work is the right one

Curtis Shelton

“Oklahoma is putting an end to the $300 federal Pandemic Unemployment Assistance benefits for Oklahomans while using other federal pandemic relief dollars to provide a $1,200 cash incentive to Oklahomans who drop off the unemployment rolls and reenter the workforce,” The Journal Record reported last month.

Gov. Kevin Stitt is taking a lot of grief from our friends on the left for this decision. But it was a wise move.

Consider, for example, the recent announcement from Chipotle of a 4% increase in menu prices to help cover the rising cost of wages. Chipotle has been steadily increasing wages with the goal of reaching an average wage of $15 an hour—another reminder of the labor shortage facing the nation (particularly in the restaurant industry). Oklahoma is not immune.

Although falling unemployment over the past few months is certainly good news, it does not tell the whole story. A look at Oklahoma’s low labor-force participation rate shows that people are still reluctant to return to work.

The expansion and increase of unemployment benefits created an environment in which people may choose to remain out of the workforce longer than normal. As more and more stimulus checks have hit people’s bank accounts, the personal savings rate soared to unprecedented levels. As the economy has slowly begun to ramp up, people have been looking to spend this money but businesses can’t keep up with the demand for goods and services. Thus, firms are offering increased wages to entice workers to reenter the workforce.

The rise in prices also highlights the effect that rising minimum wages can have on prices. The federal government continues to consider an increase of the federal minimum wage to $15 an hour from the current rate of $7.25. An increase in wages would be sure to increase prices on consumers, as shown by Chipotle’s recent action.

The difference is that Chipotle made an internal decision on how to respond to conditions in a tight labor market amid a period of high demand. The increased demand, along with higher prices, can cover the increased labor costs. By contrast, an artificial increase to wages without that increase in demand would leave businesses unable to cover the increased labor costs, leading to layoffs.

There has been no shortage of federal interference in the economy over the past year and a half. In the face of unprecedented circumstances, arguably some of it was warranted. But as things continue to get back to normal, a pullback is desperately needed. That’s why Gov. Stitt’s move was the correct one.

Curtis Shelton Policy Research Fellow

Curtis Shelton

Policy Research Fellow

Curtis Shelton currently serves as a policy research fellow for OCPA with a focus on fiscal policy. Curtis graduated Oklahoma State University in 2016 with a Bachelors of Arts in Finance. Previously, he served as a summer intern at OCPA and spent time as a staff accountant for Sutherland Global Services.

Loading Next