March 29, 2024

Economix Blog: A Look Back at Extended Unemployment Benefits

Tangled in the current Washington debate over extending the payroll tax is another thorny, but less prominent, policy issue: whether to also renew extended unemployment benefits.

States typically allow unemployed workers to receive up to 26 weeks of unemployment benefits. But two temporary, federally funded programs have enabled some job-seekers to receive checks for up to 99 weeks in states with especially high unemployment rates.

At the end of this month, those federally paid programs will end unless Congress decides to extend them once again. (The programs have been renewed several times already in the years since they were first created.) The White House estimates that without an extension, an additional five million jobless workers will exhaust their benefits by the end of 2012.

Given all this, it’s probably worth looking back at the role that unemployment benefits have played in the economy. Since June 2008, when Congress first created the Emergency Unemployment Compensation program, nearly 18 million Americans have at some point received federally funded extended unemployment benefits.

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Many economists have argued that, besides being compassionate, unemployment benefits have stimulated the economy. That’s because people who receive jobless benefits go out and spend their checks very quickly after receiving them, and spending ripples through the rest of the economy.

But some economists worry that longer periods for benefits may delay the job market recovery. By definition, jobless benefits make unemployment less uncomfortable, and so on the margins they may discourage idle Americans from going back to work if they have the option.

Benefits generally don’t cover more than half of a worker’s lost wages, and they’re capped at a maximum amount. In many states, the cap is quite low relative to the cost of living and local wages, so there is probably still a strong incentive for most unemployed workers to start earning higher wages again instead of receiving benefit checks.

The table below is from a new White House report on jobless benefits, and it shows average weekly unemployment benefits received per worker, the maximum weekly benefit granted in that state and the share of a worker’s lost wages that jobless benefits cover.

 

Another variable to bear in mind when thinking about how extended jobless benefits are interacting with unemployment rates is the employer side of the puzzle. After all, unemployment isn’t only about Americans’ work incentives; it’s also about employers’ willingness to hire.

In October, there were 3.3 million job openings, but 14 million unemployed workers, according to the Labor Department. That means that even if every single open job was filled with a willing worker, more than 10 million Americans would still be pounding the pavement.

Article source: http://feeds.nytimes.com/click.phdo?i=5ba1669469cec82fba8355c2b4c42601