This weekend, extended unemployment benefits expire for some 1.3 million Americans who are looking for jobs and have already been out of work for more than half a year.
It’s typical for these special benefits to expire after recessions. But the question this time is: Is this the appropriate moment to withdraw the special support?
It’s a tricky policy question because, although unemployment has fallen substantially from its post-recession peak, a historically high number of Americans – 4.1 million as of November – have been out of work for more than 26 weeks.
The “Emergency Unemployment Compensation” (EUC) program gives those people some extra months of support – not a free ride on the federal dole. And many economists say continuing the program would add to the nation’s economic growth next year. But the program, started in 2008, costs federal dollars at a time when the two parties have been having a hard time agreeing on budget matters.
Here are some things to know about the economics behind this policy debate.
Both unemployment and long-term unemployment are falling. The Labor Department counts 10.9 million people as unemployed (jobless and looking for work) as of November, down from 12 million a year before. And among the unemployed, the share who have been jobless more than 26 weeks is edging down, too: from 40 percent back to 37 percent recently.
But unemployment remains high and persistent. About 7 percent of the labor force is unemployed, and that 37 percent figure (jobless Americans who are “long-term unemployed”) is historically very high.
“The rise in … long-term unemployment [has been] far worse than at any other time in the postwar period,” concluded an Urban Institute study this year.
During the Great Recession and its aftermath, long-term unemployment peaked at 45 percent of all unemployment, compared with a 25 percent share back in 1983, after another severe recession, the report by Josh Mitchell said.
Translation: long-term unemployment remains higher today than in the depths of a typical recession.
The extended benefits carry a cost, but don’t last forever. Keeping emergency benefits in place during 2014 would add about $25 billion to federal deficits, the Congressional Budget Office estimates. But the payments don’t give the jobless a free ride.
States with very high unemployment can offer benefits lasting as long as 73 weeks with the EUC. But in most states, jobless benefits would last 40 to 63 weeks with the EUC in place, compared with 26 weeks without it.
Letting the benefits expire means hard choices for workers. For people out of work longer than 26 weeks, expiration of the longer benefits may mean accepting a job they’d rather not take, continuing the job hunt without any benefits, or dropping out of the labor force and leaning on family or other means to get by.
North Carolina has offered what may be a cautionary case study, by opting out of EUC early this year. Unemployment there has fallen faster than nationally – from 9.4 percent in February to 7.4 in November. But the reason isn’t people getting jobs (the number employed went down for several months before taking an upward path) as much as people dropping out of the labor force.
Economic growth could be slower without the extended benefits. In a recent report, White House economists estimated that by removing income from the economy, failing to extend the benefits would cost 240,000 jobs in 2014. The report also cited estimates by the Congressional Budget Office and JP Morgan that gross domestic product (GDP) would be 0.2 to 0.4 percentage points lower.
“Never before have we abruptly cut off emergency unemployment insurance when we faced this level of long-term unemployment and it would be a blow to these families and our economy,” Mr. Sperling said.