Jobless Benefits: It's Still The Economy, Stupid

By John W. Schoen
|  Monday, Jul 19, 2010  |  Updated 3:30 PM EDT
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Jobless Benefits: It's Still The Economy, Stupid

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DAVIE, FL - APRIL 22: Dollar General store recruiters, Cindy Douglas and Brian Themis speak with people durng a job fair at the Signature Grand on April 22, 2010 in Davie, Florida.Several companies including American Express, Metro PCS and Macy's were accepting resumes at the event.The Labor Department announced initial claims for unemployment benefits fell by 24,000 to a seasonally adjusted 456,000. (Photo by Joe Raedle/Getty Images)

While the political debate over providing jobless benefits for out-of-work Americans has been divisive, the economics are pretty clear-cut. With the economy showing signs of faltering, cutting off checks to millions of consumers could slow spending, weaken demand, and put even more people out of work.

After two failed attempts, the Senate is expected to vote again Tuesday on a measure that would restore benefits for more than two million workers who have been laid off for long stretches.

Democrats have argued that with the long-term unemployment rate at historic highs, the government has an obligation to provide for people who are out of a job. Republicans have counterargued that at a time of unprecedented budget deficits, the government can’t afford to take on more debt. With the fall election approaching, polls show voters divided on the issue.

The argument is moot for jobless Americans, who want a job with a paycheck to spend.

“When demand is as slack as it is now the worst thing you can do is make it harder for consumer to make a purchase,” said Ross Eisenbrey, an analyst at the labor-focused Economic Policy Institute. “If you took all of the (unemployment) benefits out of the economy, you wouldn’t put anyone to work. All you’ll do is suck demand out of the economy and make it more likely that employers will lay people off. “

The House already has passed a bill to maintain benefits through November, at a cost of about $34 billion. The money would be borrowed, adding to the national debt — now roughly $13.2 trillion. Republicans have pressed to have that cost paid by shifting funds already approved for other stimulus programs.

"Everyone agrees on extending the additional unemployment insurance, but the Democrat way is to insist we add it to the national debt at the same time, while blocking Republican efforts to pass the same extension without the debt," said Don Stewart, spokesman for Senate Minority Leader Mitch McConnell, R-Ky.

After massive government stimulus fueled a surge in growth in the second half of 2009 and early 2010, the latest economic data is pointing to renewed weakness. In the past few weeks, consumer confidence has taken took a turn for the worse. Last month, mortgage applications for new homes fell for the fourth straight month to a 14-year low. Factory output slipped and retail sales were down for the second month in a row. Small business owners, business economists and homebuilders have turned gloomier about the outlook.

“Times are hard right now,” President Obama said Monday as he urged Congress to approve the measure. “I know it’s getting close to an election, but there are times where you put elections aside. This is one of those times. “

Unemployment insurance is just that: a state-managed fund, financed by premiums paid by workers and employers, to provide support for people who lose their job. All workers get regular unemployment benefits for 26 weeks. Eligibility requirements may vary somewhat, but in general you need to show that you are available for work and actively looking for a job.

Those funds rapidly depleted as the worst recession in a generation sidelined more than 8 million workers — raising the jobless total to about 15 million. As the recession deepened, so has the average length of unemployment. Some 45 percent of those who are unemployed have been out of work for more than six months; roughly a quarter have been out of work for a year or more.

Because millions of workers move on and off the employment rolls every month, the number of Americans facing joblessness at some point is even higher. Last year, some 21.2 million people were out of work for some period of time.

Some critics of the proposal to extend benefits argue that doing so gives jobless people less incentive to find work, adding to the problem of long-term unemployment. Some economic studies indicate that, in some cases, workers collecting benefits may hold out for a better officer longer than those with no other means of support.

But with five applicants for every job opening, there’s little evidence that jobless benefits are contributing to persistently high unemployment.

“When nearly one in 10 American is out of work, you’ve got to recognize that these people aren’t out of work just because they’re deadbeats,” said Robert Brusca, chief economist at Nomura Securities. “What happens if you don’t put these people back to work?"

Beginning in July 2008, Congress began a series of federal benefit extensions to supplement depleted state-sponsored insurance funds. The system now consists of four separate "tiers" of benefits that provide as much as 73 additional weeks of benefits, for a total of 99. The measure currently before the Senate would keep those interim tiers in force.

About 2.5 million people have already lost their benefits since the program extension ran out at the end of May. The measure currently before the Senate would continue the existing program of long-term benefits. But it would not extend the number of weeks jobless workers can collect benefits; those who are out of work for 99 weeks would no longer be eligible.

“The sad fact is that even with passage of this (bill) millions of people will exhaust their benefits,” said Eisenbrey. “There’s no program to support them. So millions of people are going to be facing very serious trouble in the months ahead.”

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