The Unassuming Economist

A new report from the U.S. Congress Joint Economic Committee (JEC) finds that if federal UI benefits are allowed to expire, over 2 million long‐term unemployed workers stand to lose their benefits in early 2012. That number could grow to 5 million before the end of 2012.

Entitled “The Case for Maintaining Unemployment Insurance: Supporting Workers and Strengthening the Economy,” the report finds that at 3.7 percent, the current long-term unemployment rate is nearly three times higher than it has ever been when Congress let federal benefits expire.

“Unemployment benefits serve as a critical lifeline to workers and their families in the face of a sudden and severe drop in income,” said Senator Bob Casey, Chairman of the JEC. “These benefits help struggling families pay for their necessities such as food, housing, clothing, and utilities—obligations that continue even when a family member loses a job.”

On average these benefits only meet half of basic household expenditures but they kept over 3 million Americans out of poverty in 2010. Research shows that extending federal UI benefits during periods of high unemployment works to pull the economy back from a downward spiral whereby reduced consumer demand leads to further reductions in economic activity, and that in turn leads to more job losses.

“Continuing the current emergency federal UI programs is vital to the economic recovery. A temporary reauthorization would not only give millions of struggling long-term unemployed Americans a lifeline, it would bolster the economic recovery by generating jobs and accelerating economic growth. Washington must put aside partisan bickering and give American families the help they need to stay on their feet,” said Casey.

Report highlights include:

• Over 40 percent of the unemployed have been without a job for at least six months, and over 30 percent have been unemployed for at least one year. Letting emergency federal benefits expire now would be unprecedented and could derail the recovery.

• Even without lengthening the maximum allowable duration of benefits, continuing federal benefits could generate up to 400,000 jobs. The boost to the economy from additional spending on UI benefits is estimated to be as large as $1.90 for each dollar of assistance—the greatest “bang-for-the-buck” among a range of fiscal policies designed to boost gross domestic product (GDP) and create jobs, according to the non-partisan Congressional Budget Office (CBO).

• Claims that extended UI benefits deter unemployed workers from looking for work are unfounded. On the contrary, beneficiaries of federal UI benefits have spent more time searching for work than those who were ineligible for UI benefits. Studies find the impact of additional benefits on the unemployment rate to be small. 

• Any increase in the unemployment rate because of federal UI benefits is most likely because the beneficiaries remain attached to the labor force and continue to search for work, not because they refuse employment or do not search for a job.