Unemployment Benefits Face the Ax: Will Congress Make the Cruelest Cut?

Nearly lost among discussions of tax increases and entitlement cuts, long term unemployment benefits are in danger of falling off the edge of fiscal cliff negotiations. Benefits for approximately 2.1 million Americans who have been out of work for more than six months are set to expire at the end of December. This is not only bad news for those 2.1 million, but for the economy as a whole. According to a recent House Ways and Means committee report, failure to resolve the issue could result in a $58 billion blow to an already fragile economy.

Opponents of extending the benefits worry that, aside from their pricetag, they provide an incentive not to work, or as Heritage Foundation analyst James Sherk, quoted in a recent Associated Press article argues, "Prolonged benefits lead some unemployed workers to spend too much time looking for jobs that they would prefer to find, rather than focusing on jobs that they are more likely to find." 

There are two problems with this argument. First, as has been amply documented, there are simply not enough jobs to go around. Earlier this year, EPI pointed out that there had been over 4 job seekers for every job opening for three years straight. Things are only slightly better today.

Second, given that many unemployed people have invested significant time and money in obtaining degrees that qualified them for skilled positions (and have the student debt to show for it), it is not unreasonable that at least for a time, job seekers look for something in their field rather than any job at all. 

It's also not as if life on unemployment is easy, given that these benefits generally won't net one more than about $15,000 per year, barely poverty level. 

The government has already spent $520 billion on unemployment benefit extensions since the financial crisis. Most experts agree that, from a stimulus perspective, this has been money well spent. Every dollar spent on UI benefits in 2013 would translate to an additional $1.10 in economic output, according to the Congressional Budget Office. A recent CBO study reports that extending the current level of long-term unemployment benefits another year would add 300,000 jobs to the economy. The average $300 per week is usually spent quickly for food, rent and other basic necessities. In contrast, extending the Bush tax cuts for the wealthy would lead higher earners to mainly keep socking away more money in investment accounts and do little to stimulate the economy. 

The labor market continues to be weak, and the deadline for resolving the fiscal cliff is right around the corner. Unlike other benefits that may survive if a deal is reached after the current year-end deadline, unemployment benefits cannot be fixed retroactively for people who need to immediately buy groceries or pay rent in the meantime. As representative Sander Levin put it “Congress must act quickly to ensure that we do not abandon those workers who have lost their jobs through no fault of their own.”

Extending unemployment benefits would not only protect those workers, but boost the economy.