Why Congress Can’t Afford Not to Extend Unemployment Benefits Again

U.S. News & World Report | Liz Wolgemuth, On Wednesday July 7, 2010, 11:58 am EDT

It’s “Recovery Summer,” according to White House officials who have been circling the country to show off solar-panel installers working on Federal buildings and construction workers building senior housing projects–jobs created by last year’s stimulus, which is still being spent. Unfortunately, this season has lost its luster for many who aren’t at work on stimulus projects. In a move that may have spelled financial crisis for nearly a quarter of the 9.2 million Americans living on unemployment checks, Congress adjourned for July 4th recess without extending emergency benefits. When Congress returns July 12th, some 2.14 million out of work Americans will have lost their benefit checks.

While economists are split on the merits of further government spending in the name of job creation, few debate the merits of paying unemployment benefits when unemployment is at 9.5 percent. Not only do benefits provide necessary income when the private sector cannot, they are also believed by many to be a sprightly stimulus–putting money in the hands of people who spend it immediately. With five active job seekers for every job opening in the United States, job creation needs to be much more robust before benefits are cut. “We have a big problem–people can’t find jobs,” says Thomas Kochan, codirector of the Institute for Work and Employment Research at MIT. “This recession has been unusually harsh on people who have been out of work for an extended period of time, so it’s time for Congress to act.”

When Congress reconvenes, the Senate jobs bill could restore federal benefits that expired June 2, and extend them through November. This is considered by many to be a crucial lifeline for the jobless, many of whom have been shut out of the fledgling job market thanks to mismatches in their skills or expectations and employers’ needs. Republican Senators have blocked the bill because they have differed with Democrats on how to pay for it.

If Congress fails to extend benefits when they return from recess, an estimated 3.2 million Americans will lose their benefits by the end of July–a result that could cause obvious financial, social, and psychological distress for millions of households. It would be a strange turn of events for a Congress that has traditionally doled out benefits in periods of high unemployment. “That certainly has been the historical pattern–typically benefits are extended repeatedly until the unemployment rates get down to a certain level, and obviously whatever that level is, we’re not there yet,” says Stephen Stanley, chief economist at Pierpoint Securities in Stamford, Conn. “Historical experience would suggest you would be expecting Congress to continue to extend benefits at this point in the cycle.”

The logistics of current benefits can get pretty confusing, so here’s the basic rundown: Most states provide the first 26 weeks of benefit checks. During the recession, Congress authorized emergency benefits lasting, ultimately, 34 weeks with a couple of additional tiers that added 13 extra weeks for some states, and an extra six weeks on top of those 13 for fewer states–based entirely on how high their unemployment rates were. Finally, extended benefits kick in after emergency benefits, and those last 13 to 20 weeks. That’s the formula that has given some long-term unemployed workers in very lousy job markets access to 99 weeks of unemployment.

The long-term unemployed, or those out of work for six months or more, now make up 46 percent of the total unemployed. Long-term unemployment is a vicious cycle: workers can’t find work for a long time for a variety of reasons, then get shut out of new hiring because they’ve been unemployed for so long. Many may never return to the same occupations they had in, say, the hard-hit construction or manufacturing industries. “We are seeing some structural changes in the economy,” says Sung Won Sohn, an economist at California State University-Channel Islands. While the government can’t pay benefits forever, the government has some responsibility to train workers for new roles, Sohn says.

[See 5 things to know about the newest jobs bill.]

Ultimately, any investment in retraining won’t show a return until employers are really hiring again. While the private sector added more than 80,000 jobs last month, the economy needs about 150,000 a month just to absorb normal labor force growth. At this stage in the recovery, employers should be adding 200,000 to 300,000 each month, Sohn says. This kind of math gives plenty of support to the argument for extending jobless benefits again, given that there are not nearly enough openings to match job seekers. In other words, benefits aren’t giving much competition to paying jobs.

Even so, if Congress extends benefits through November, they are likely to be smaller. Given Washington lawmakers’ concern over deficit spending, there’s little chance that Congress will continue the stimulus provision that added an extra $25 to every weekly benefits check. Without the extra dollars, the average U.S. benefit check is a little less than $300 a week. Many find the penny pinching over benefits unseemly. Larry Mishel, president of the Economic Policy Institute, says cutting the extra $25 in an effort to look fiscally responsible “is to hurt the unemployed almost for symbolic purposes.”

Last month the number of long-term unemployed declined slightly–but significantly. Those who fell off those rolls were likely among the roughly 650,000 people who dropped out of the labor force in June, pushing the unemployment rate down to 9.5 percent. It’s safe to figure that some of the long-term unemployed saw their benefits run out in June and, without the need to meet the active job search conditions for receiving benefits, took a break from their searches and were no longer counted in the labor force. (Contrary to what some people believe, an unemployed worker can be counted in the labor force even if they’re not receiving unemployment benefits. Data for the two measures–unemployment and benefit claims–are collected separately.) So, unemployment benefit extensions incentivize job searching for even the most beleaguered and downtrodden job-seeker. Those who have collected 99 weeks of unemployment during this recession have consistently, if unsuccessfully, sought work for nearly two straight years. Without benefits, no doubt many job seekers would have quit looking for work much earlier.

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