Are Unemployment Benefits a Blessing or a Curse?

When the US Congress left town for its Fourth of July recess, one of the last things the Senate did was to deny the Obama administration’s proposal to extend funding for both the Extended Unemployment Compensation and Extended Benefits programs. Funding for the programs ended June 2, though they could be reinstated when the Senate returns.

The following chart from the US Department of Labor’s Education and Training Administration provides an estimate of the numbers of unemployed who will be affected by the loss of benefits from the two programs.

The yellow bar represents some 1.35 million unemployed who will have stopped receiving benefits by the end of June. The orange bar indicates that about 3.22 million people will see an end to their benefits by July 31st.

The Senate dispute centers on divergent views not only on the growing federal deficit, but on whether  extending unemployment benefits will help the economy. Senate Republicans argue that extended benefits make unemployment more attractive, or at least less unattractive. They also argue that the federal government should not increase the deficit by borrowing more to support the programs. Senate Republicans have filibustered every attempt to get the benefits programs to a vote.

Senate Democrats have argued that benefit payments are too low to act as a disincentive to work, and that the ratio of job seekers to jobs, now about 5:1, bears out that conclusion. Democrats also argue that money spent on benefits goes directly into the economy to buy necessities such as food, shelter, and clothing.

Whichever side you take in this argument, what is indisputable, and what the chart implies, is that growth in personal income and spending will be lower in the months ahead if the Senate does not reinstate the two benefits programs. And there is pretty wide agreement that the US economy needs income growth and spending growth if it is to find its way out of the doldrums.

At their peak, in January 2010, the two benefits programs had about 6.5 million qualified recipients out of a total of 10.8 million unemployed. Cutting that number in half by the end of July, aside from the human pain it will cause, works against an economic recovery.

Paul Ausick