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Forum Post: Congress needs to extend unemployment benefits

Posted 8 months ago on Jan. 8, 2014, 2:02 p.m. EST by FlaviaA (-4)
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WITH THE surprising support of six Republicans, the Senate on Tuesday mustered the 60 votes necessary to proceed on extending emergency unemployment benefits for an additional three months, at a cost of $6.5 billion. This is good news for the 1.3 million unemployed workers who have been laid off so long that they have exhausted their unemployment insurance. It is also good news for another roughly 1.9 million at risk of exhausting their benefits later this year.

The long-term unemployed, defined as those out of work for at least 27 weeks, make up more than 37 percent of all the United States’ jobless. This is an unusually high level of long-term unemployment so long after the ostensible start of a recovery from a recession. The U.S. economy’s strong growth rate in the third quarter of 2013, and the prospect, according to several forecasters, that 2014 will bring more job creation, offer hope that this extension of unemployment insurance may be the last. Still, the continuing weakness of the U.S. labor market is a reality, one of the uglier aspects of the Great Recession and its aftermath — a reality sufficient to justify further aid.

Certainly, today’s unemployment rate of 7 percent, in the context of a shrunken labor force, undermines Republican arguments that more benefits would enable recipients to avoid seeking employment, or, as Sen. Rand Paul (R-Ky.) put it, “to become part of this perpetual unemployed group in our economy.” Economic theory does, indeed, suggest that overly lengthy or generous unemployment compensation discourages work; this has been problematic in certain European countries. In the United States, where benefits generally do not exceed 50 percent of prior earnings, the best evidence suggests that extending unemployment insurance benefits now would increase the unemployment rate by only a few tenths of a percentage point. And that would mostly be because of a statistical quirk, not perverse incentives: Many long-term unemployed would cease seeking work once they lost their benefits and thus no longer count as part of the labor force.

It may actually be efficient to help some workers stay unemployed a bit longer, until a job comes along that matches their skills, rather than force them to waste those skills on the first available position. We’re more skeptical of Democratic claims that extending unemployment benefits would stimulate recipients’ spending and thus boost economic growth. Any such Keynesian fillip is likely to be minuscule at best, just as the $6.5 billion increase in the budget deficit is too small to warrant GOP demands that extended benefits be offset by spending cuts elsewhere.

Instead of rehearsing these hoary arguments, we’d like to see Republicans and Democrats discuss ways to reform unemployment insurance programs to maximize relief to the unemployed and incentives to get back on the job. Economist Michael Strain of the American Enterprise Institute suggests cash bonuses, paid with unemployment insurance funds, as a reward to the unemployed when they find work. Ultimately, the best answer to long-term joblessness is restoring rapid economic growth, a subject to which Congress must turn as soon as the unemployment benefits fight is over.

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