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VOL. 38 | NO. 1 | Friday, January 03, 2014
Unemployment aid: What's at stake for US economy
WASHINGTON (AP) — More than a million Americans lost their unemployment benefits late last month, when a temporary federal program expired. Congress is debating whether to restore the aid for three more months.
A bill to do so cleared a key procedural hurdle in the Senate on Tuesday. But final passage remains unclear. Democrats say extending the aid would boost hiring and economic growth. But many Republicans say the benefits discourage the unemployed from seeking work and would widen the federal budget gap.
Some questions and answers about what's at stake for the U.S. economy:
Q. Who's affected?
A. Nearly 1.4 million Americans who have been unemployed for more than six months. No longer can people continue to receive checks longer than that. Hundreds of thousands of others will lose their benefits in coming weeks, when they, too, will max out on the six months of unemployment benefits that most states provide.
Q. What did the expired program provide?
A. Starting at the end of 2008, it gave unemployment payments to people who had exhausted their state benefits. In some cases, people were able to collect aid for nearly two years.
Q. Why have some Americans needed benefits for so long?
A. Mainly because the job market has remained weak even though the Great Recession officially ended more than 4½ years ago. Many Americans have been unemployed for well beyond six months. More than 5 million jobs were shed in 2009 alone. The national unemployment rate has dropped from a peak of 10 percent to 7 percent. But of the 10.3 million people who are still unemployed, nearly half have been without a job for more than six months, according to the Labor Department.
Q. Do extended benefits help the economy?
A. Many economists say they do. Unemployment checks help cover the rent, groceries and gasoline for millions of financially squeezed Americans, according to congressional Democrats. It boosts consumer spending and reduces dependence on other government welfare programs. All that lifts the economy slightly. The nonpartisan Congressional Budget Office said in December that continuing the benefits for a full year would add 200,000 jobs and 0.2 percentage points to economic growth in 2014. To put that in context: The economy added an average of fewer than 200,000 jobs a month during 2013. That said, the economic benefit of a three-month extension would be much less.
Q. What about critics who argue that these benefits, in effect, pay people not to work?
A. Not quite. To receive benefits, an unemployed person is supposed to actively look for work. And supporters note that the checks average $256 a week, which still keeps things pretty close to the poverty line. Congress has renewed the extended benefits each year. But unlike previous yearlong extensions of the emergency benefits, this continuation would be for just three months.
Q. What's the cost to taxpayers?
A. Extending the benefits for three months would cost $6.4 billion. Most congressional Republicans don't want that sum tacked onto the budget deficit. So they plan to negotiate for additional spending cuts.
Q. What happens to people when they lose their unemployment benefits?
A. Many basically drop out of the economy. Some apply for Social Security disability benefits to get by, according to academic research. Because of changes to its system, North Carolina began cutting unemployment aid in July. The state's unemployment rate dropped from 8.8 percent in June to 7.4 percent in November. But that's not because lots of people suddenly found jobs. Since they were no longer receiving benefits, many discouraged workers gave up their search and were no longer counted as unemployed. So the state's unemployment rate fell for the wrong reason.
Q. But critics say extended unemployment benefits can actually hurt the economy. Why?
A. The argument is that extended benefits keep the unemployed on the sidelines, waiting for that perfect job that almost never materializes. Research shows that many employers ignore jobseekers with gaps of more than six months in their resume. When people are out of work that long, their skills start to erode, as does their earning potential, said Douglas Holtz-Eakin, a former CBO director who has advised Republicans. He calls the program "a mixed blessing." Holtz-Eakin notes that unemployment benefits were created during the Great Depression to address temporary layoffs. It was never intended to be a job re-training or anti-poverty program, he says.