Put the Taxpayers’ Money and the Unemployed to Work
After emergency unemployment insurance benefits expired for more than 1.3 million Americans on December 28, 2013, President Obama vowed to make the issue a top priority in the New Year. On January 6, 2014, the Senate voted 60-37 in favor of S. 1845, which would extend the Emergency Unemployment Compensation (EUC) program despite the effort of Sen. Jeff Sessions (R-Ala.), who tried unsuccessfully to pass an amendment to offset the cost of the bill. The $6.5 billion package will now be sent to the House, where it will face an uphill battle for several reasons, including the lack of an offset.
The Obama economy has created an unprecedented number of long-term unemployed Americans. On January 10, 2014 the Department of Labor’s Bureau of Labor Statistics (BLS) released an employment summary that classified 4.1 million workers as long-term unemployed (defined as someone who has been unemployed for longer than 27 weeks), and 917,000 discouraged workers who have stopped looking for work altogether. Only 74,000 jobs were created in December 2013, well below the 200,000 gain many economists had been hoping for, making it the slowest month for job growth in three years.
The BLS also reported that even though the unemployment rate dropped from 7.0 to 6.7 percent in December 2013, the number of long-term unemployed showed little change, remaining steady at 3.9 million. Those individuals accounted for 37.7 percent of the unemployed. Only 62.8 percent of the adult population is currently participating in the labor market, which is the lowest level since 1978.
In the 60 months that President Obama has been in office, ten EUC extensions have been approved; seven of them added to the national debt since the costs were not offset. Including the recent BSL report, the unemployment rate has decreased by only 1.1 percentage points under the Obama administration.
A December 3, 2013 Congressional Budget Office (CBO) letter to House Budget Committee Ranking Member Rep. Chris Van Hollen (D-Md.) noted that even though a three-month extension of EUC would create 200,000 jobs in 2014 due to an increase in spending on consumer goods and products by beneficiaries, that increase would provide only a short-term shot in the arm and result in a mere 0.2 percent rise in the gross domestic product.
In fact, with the cost of extending unemployment insurance estimated at $26 billion over 10 years, S. 1845 would “lead to greater federal debt, which would eventually reduce the nation’s output and income unless other policy changes were made that offset the increase in federal debt.”
In addition, the CBO recognized that “… in response to the extension of benefits, some unemployed workers who would be eligible for those benefits would reduce the intensity of their job search and remain unemployed longer—which would tend to decrease output and employment.”
CBO’s assessment echoes the findings of other experts. In 2013, independent economists Marcus Hagedorn of the University of Oslo, Fatih Karahan of the Federal Reserve Bank of New York, and Iourii Manovskii and Kurt Mitman of the University of Pennsylvania published a National Bureau of Economic Research paper titled “Unemployment Benefits and Unemployment in the Great Recession: The Role of Macro Effects.” The authors stated “that most of the persistent increase in unemployment during the Great Recession can be accounted for by the unprecedented extensions of unemployment benefit eligibility.”
The report compared counties that neighbor each other, but which are located in different states. The chosen areas had similar job markets due to geography, climate, access to transportation, and access to specialized labor and supplies; the only difference was each state’s unemployment compensation policies.
The economists concluded that states that extended unemployment benefits for one quarter, or about 12 weeks, saw their unemployment rates increase exponentially. In the states where benefits were extended from 26 to 99 weeks, the average unemployment rate more than doubled from 5 percent to 10.5 percent.
In addition to concerns about the costs and negative long-term effect on the employment market, there is yet another factor that adds to the already troubling equation. A 2012 Government Accountability Office (GAO) report found that the federal unemployment insurance program was riddled with improper payments; of the $115.3 billion in total improper payments reported in 2011, federal unemployment program had $12.4 billion in erroneous payments, an 11 percent error rate, which makes it the fourth highest among the programs examined by the GAO. The GAO reported that insufficient documentation, errors in transfers, misinterpretations of data, and payment miscalculations attributed to the programs’ improper payments. Cutting those improper payments in half would pay for almost all of the $6.5 billion EUC extension cost.
If Senate supporters of the EUC extension were genuinely concerned about offering real solutions to America’s unemployed, they would have addressed the issue long before the expiration of the EUC and passed at least one of the 40 jobs bills that were approved by their counterparts in the House. Instead, all 40 bills remain stagnant in the Democratic-controlled Senate.
In order to truly help both the long-term unemployed and the economy, the extension should be paid for without adding to the national debt and pro-growth economic policies should be enacted.
— Alexandra Booze
