Why unemployment benefits should be extended

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  • We shouldn’t let emergency federal benefits expire because the same fundamental logic that led to their being (correctly) enacted still holds today

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  • The labor market is still in bad shape, the economy is still weak, there are three times as many unemployed workers as job openings.

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Why extend the emergency federal unemployment-insurance program? Herewith, two reasons:

1. In normal times states (typically) offer 26 weeks of unemployment (“UI”) benefits to qualifying workers. During recessions, the federal government has in the past supplemented the offering of the states, providing additional weeks of UI benefits to workers who are unemployed for longer than 26 weeks. This is a reasonable and prudent measure – if 26 weeks is deemed long enough for a worker to find a job in normal economic conditions, then it’s not long enough during a recession, when jobs are much harder to come by. This is doubly true for a downturn as serious as the Great Recession. When the labor market is in better shape, of course, the emergency federal extensions are allowed to expire.

As you can see from the figure below, in the two recessions prior to the Great Recession emergency federal UI expired when the long-term unemployment rate — the share of workers who have been unemployed for 27 weeks or longer — was 1.3 percent. The long-term unemployment rate is currently at twice that level.

We shouldn’t let emergency federal benefits expire because the same fundamental logic that led to their being (correctly) enacted still holds today: The labor market is still in bad shape, the economy is still weak, there are three times as many unemployed workers as job openings.

Simply put, as the chart above shows, it’s much harder for the long-term unemployed to find a job right now than it has been in the past when emergency federal benefits were allowed to expire.

Another simple way to see this is to look at the long-term unemployment rate in historical context. Does it look to you like the problem is behind us and it’s time to pull the plug on emergency benefits?

2. To qualify for UI benefits, an unemployed worker must be available and able to work, and must be actively searching for a job (among other requirements). It is true that if we do not extend emergency federal UI benefits then the unemployment rate will likely drop – some share of today’s unemployed have remained unemployed because they are receiving UI benefits. If the checks stop, then some workers probably will take a job that they wouldn’t otherwise have taken had their UI checks continued to roll in. But other long-term unemployed workers will simply drop out of the labor force altogether, abandoning their search.

Labor-market research conducted during the Great Recession finds that extended UI benefits have lengthened unemployment spells, but not by much. And if we let emergency federal UI benefits expire, then the best guess based on the research is that more long-term unemployed workers will simply quit looking for a job and exit the labor force than will take a job they have been too choosy to take.

We should want to keep the long-term unemployed attached to the labor force until the economy picks up, more jobs become available, and they can find work. We should not want today’s long-term unemployed to permanently exit the labor force simply because their UI benefits expire. Why? Because many may end up on government assistance until they reach retirement age. That is worse for them, worse for the economy, and more expensive for the federal government over the long term.

For both these reasons — long-term unemployment is much more severe today than it has been in previous recession when we’ve pulled the plug on emergency benefits, and ending emergency UI will likely result in many of today’s long-term unemployed exiting the labor force — we should extend benefits into 2014.

— Michael R. Strain is a resident scholar at the American Enterprise Institute.

 

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Michael R.
Strain

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