Jobless Benefits Extension: To Pass or Not To Pass?

Source: http://www.flickr.com/photos/proimos/

One of the largest stimulus measures passed during the recession was the extension of unemployment benefits beyond the typical 26-week period. The 2008 unemployment extension bill was created as means to combat poverty and help the millions of newly unemployed during the worst recession the U.S. has experienced since the Great Depression.

It was that year that the number of unemployed workers began increasing before hitting a peak of 14.4 million in 2009. Comparatively, an average of approximately 8 million laid-off workers began receiving jobless benefits. Since the federally funded program began in July 2008, Congress has voted to extend the legislation several times, and the Congressional Budget Office has said it is among the most effective forms of government stimulus.

Given the ongoing disagreement between lawmakers as how to disburse federal funds, the sticking point in deciding whether to further extend unemployment benefits is cost; extending the program through 2014 would cost an additional $25 billion.

If that $25 billion is deemed too much and the bill does not garner enough bipartisan support, in the last week in December, an estimated 1.3 million people will lose access to the emergency program that provides additional weeks of jobless benefit, and a further 850,000 will be denied benefits in the first quarter of 2014. In total, nearly 4.8 million people could be affected by the expiration of unemployment benefits through 2014, according to estimates made by President Barack Obama’s top economic adviser, Gene Sperling.

Total weeks claimed

Source: U.S. Department of Labor

In support of their case to extend the period covered by the unemployment insurance program, congressional Democrats cite the still-weak economic recovery and lingering high unemployment numbers. The number of Americans applying for unemployment benefits has been trending down, but for months, the falling jobless claims were not accompanied by increased hiring, as is usual.

Hiring has yet to significantly accelerate. Stepping back to look at the larger picture, the hole left in the jobs market caused by the recession is still gaping. More than 4 million people have been out of work for more than six months, and more than 11.3 million in total are looking for a job.

But Democrats and Republican lawmakers have not found it easy to compromise as of late. Congress is still far from forging a budget a deal, and lawmakers have been unable to find an alternative to the $1 trillion across-the-board budget cuts — known as the sequester — that were implemented in March.

With that track record, inking an agreement to extend unemployment benefits seems like a near-impossible task. Even lawmakers themselves say the likelihood that an extension agreement can be reached in the two weeks before Congress adjourns is small.

Negotiators in both houses of Congress are debating a relatively small deal, one that would replace or alter the sequestration without including an extension to the jobless program. Yet even that agreement could fall through because of the degree of partisanship that guides Washington politics.

Both Republicans and Democratic lawmakers express a desire to find “common ground,” as Rep. Paul Ryan of Wisconsin, the House budget chairman, told The New York Times. However, the jobless benefit extension could be the sticking point. Democratic Sen. Patty Murray of Washington, the chair of the Budget Committee, supports extending the unemployment benefit period, one senior Democratic aide told the newspaper.

Still, in the broader budget talks now taking place in Congress, Democrats are pressing for the extension. The party has history on its side. “Historically, there has not been a time where the unemployment rate has been this high where you have not extended it,” Sperling said in an interview with The New York Times. “Why would you not extend now, when you’re dealing with the nearly unprecedented levels of long-term unemployment coming off such a historic recession? This would be the wrong time to do it.”

The argument over funding a further extension of the unemployment benefits program is by no means new: A similar debate has occurred each time the federal government has tried to extend the program, with lawmakers haggling over how long the extension should last and how much the extension will cost. Already, several recession-era emergency programs have begun to wind down, including an expansion of the food stamp program, which expired this month.

Recent data have made the economic picture appear slightly more rosy than it has in recent months. Gross domestic product rose 2.8 percent in third quarter, and the most recent jobs report from the Department of Labor not only showed that the U.S. employers expanded payrolls by a better-than-expected 200,000 jobs in October but that average job creation over the past three months exceeded a 200,000 job per month pace. From these numbers, it appears that if an extension of unemployment benefits comes, it will come as the economy is slowly improving.

Of course, the headline numbers, especially the falling unemployment rate, hide lingering weakness in the job market. Millions of Americans have been looking for work for more than six months, and the percentage of the working-age population with a job has shrunk over the past month. According to the left-leaning Economic Policy Institute, the failure to extend unemployment benefits would further harm the jobs recovery, reducing growth by 310,000 positions in 2014 because consumers would have less money to spend as a result.

With consumer spending depressed, companies’ earnings would be hurt and they would hire fewer new employees. Furthermore, JPMorgan Chase economist Michael Feroli has calculated that a congressional failure to extend jobless benefits and the resulting drop in consumer spending would drain approximately four-tenths of a percentage point from first-quarter economic growth.

About 2.5 million unemployed individuals who have not worked in six months or more are not currently receiving federal jobless benefits. For those workers who have been unemployed for extended periods of time, the odds of finding another job are low — about one in 10.

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