Unemployment Benefits: Lifeline for Workers and the Economy

The United States faces the gravest unemployment crisis since the Great Depression. At least 25 million Americans, or 16.1 percent of workers, are unemployed or underemployed. The average length of unemployment is 10 months, a record high. Those who have been unemployed for just 5 weeks have only a 30 percent chance of being hired in this economy; those who have been without work for more than 27 weeks, have a 1 in 10 shot.

The federal government must do more to address this historic crisis. One essential policy response is to further extend unemployment insurance benefits (UI). For many Americans, UI has been the sole reason their families and communities have not sunk into poverty. When she loses her job, the median individual has a savings of roughly $250, not nearly enough to meet their financial obligations. UI fills the gap – or should. The unemployment rate has now been over 8 percent for 30 months, and as the jobs crisis has dragged on, more unemployed Americans have exhausted their UI benefits. In California alone, over 500,000 people have run out of benefits.

Yet instead of providing more relief to America’s unemployed – people who are broke and often desperate through no fault of their own – the federal government is on track to provide less. Under the terms of the debt ceiling deal approved by Congress in early August, funding for extended unemployment benefits will expire in January 2012. These extended benefits, which Congress began authorizing in 2009 and refunded last year, provide an additional 73 weeks of benefits to workers who have exhausted the standard 26 weeks of benefits provided by state UI programs.

Unemployment benefits are also under attack in the states. Six states have cut the period during which workers can collect benefits to below 26 weeks, which has been a standard nationally for over a half century. Among these are states with double-digit unemployment rates, including Florida, Michigan, and South Carolina. In addition, several other states have reduced unemployment benefits or made the eligibility requirements more onerous.  

Lawmakers have cited financial pressures to justify these cuts. Yet one reason that unemployment insurance trust funds are running out of money is because they weren’t adequately funded during flush times. This is not the fault of the unemployed and they shouldn’t suffer for the mistakes made by the same state legislatures that are now cutting their benefits.

Benefits cuts are also justified by the view that such payments prolong unemployment and foster idleness. This belief derives from studies, like those from the Cato Institute, that show a correlation between increased unemployment benefit and longer unemployment. While this may be true in some cases, the vast majority of those receiving unemployment benefits have a huge incentive to find jobs since their benefits typically replace less than half of their lost wages and leave them unable to meet many expenses. Moreover, some economists argue that workers who receive unemployment benefits are less likely to become discouraged and permanently leave the labor force.

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