Unemployment Benefits Need to be Extended NOW

Christine L. Owens, executive director of the National Employment Law Project and former policy director for the AFL-CIO, testified today on unemployment in the U.S. economy before the U.S. Congress Joint Economic Committee. She adapted her remarks for us today. (Read her full testimony here.)

The U.S. Department of Labor’s employment report for February was another grim reminder of how bad the economy is for workers. Employers have shed jobs, people are dropping out of the workforce and growing numbers are forced to work part-time because they cannot get full-time hours. Added to the other signs of economic downturn, the employment report is a strong case for a federal extension of unemployment benefits, to stimulate the economy and provide income support to the 3 million jobless workers who will run out of their 26 weeks of state benefits this year and without new jobs or extended benefits, risk losing everything.

The president and many in Congress oppose extending benefits because, they say, the unemployment rate is not high enough. Reliance on the unemployment rate alone to determine whether and when to enact extended benefits is misguided for a number of reasons, not least of which is that the unemployment rate is a lagging indicator:  By the time it rises significantly, a recession will be well under way, or may have ended altogether. Since the point of extended benefits is to stimulate the economy—and hence, avoid or minimize a recession—it makes no sense to wait until the damage is done before taking steps to prevent it.

Another problem with considering only the overall unemployment rate is that it ignores altogether today’s unusually high rate of long-term unemployment. Since it is precisely the long-term unemployed who stand to gain or lose the most in the debate over extended benefits, it is important to look closely at what is happening with respect to this important indicator of labor force well-being. By many measures, long-term unemployment is worse now that at the start of previous recessions, underscoring the urgent need of extended benefits.

First, long-term unemployment has remained high throughout this recovery. For 31 consecutive months beginning in November 2002, more than 20 percent of jobless workers were unemployed for at least six months. Similar long-term unemployment rates prevailed for only 23 months during the 1990’s recovery and only 18 months in the 1980s.

Second, the share and number of long-term unemployed workers are greater now than when the last two recessions began. The long-term unemployed are 17.5 percent of jobless workers today, compared with 11.1 percent in March 2001 and 9.8 percent in July 1990.  Last month, nearly 1.3 million workers had been unemployed for more than six months, roughly double the 696,000 in 2001 and 688,000 in 1990.

Third, more jobless workers are exhausting their state unemployment benefits now. The recent benefit exhaustion rate is 36 percent, compared with 32 percent in 2001 and 28 percent in 1990. 

Fourth, unemployment spells are longer now. The average length of unemployment was 16.8 weeks last month, but only 12.6 weeks in March 2001 and 11.9 weeks in July 1990.

Finally, long-term unemployment has not fallen to pre-2001 recession rates of 10 percent to 11 percent of the unemployed, as it did after the two preceding recessions.  Nor will it do so soon: Continuing benefits claims now exceed 2.8 million, the highest level since October 2005, when claims peaked after Hurricane Katrina. This means far more workers will be exhausting their benefits in coming months.

Persistently high long-term unemployment underscores the importance of extending jobless benefits now, to provide a quick jolt to the economy and critical support for working families and communities suffering in the downturn. Three million long-term unemployed workers will exhaust their regular state benefits this year, which average just $285 a week. These individuals are primarily adults with substantial workforce commitment. More than one-third—37 percent—are older than 45, though workers in this age group are only 27 percent of the unemployed generally. Similarly, African Americans make up 21 percent of the unemployed, but 28 percent of the long-term unemployed. And while long-term unemployment is distributed across industries, manufacturing workers account for a slightly larger share of the long-term unemployed than of jobless workers overall. 

Unemployment benefits are also widely recognized as one of the most effective means to stimulate the economy quickly and help avoid or ease recessions. Benefits flow immediately to workers who need them—and spend them. A major study of five previous recessions found that at their peak, jobless benefits save an average of 130,000 jobs on an annual basis, and every dollar spent on benefits boosts GDP by $2.15. This is because dollars are quickly pumped back into the economy, and because, as economist Mark Zandi suggests, maintaining jobless benefits boosts consumer confidence, which encourages consumption, the backbone of the economy. 

Extending benefits now will also help mitigate the worst foreclosure crisis the nation has experienced since the Great Depression. Unemployment magnifies the risk workers will lose or leave their homes, while unemployment benefits provide a cushion to help workers and their families stay put and preserve communities. A 2003 Peter Hart survey of unemployed workers found one in four had moved to other housing, or moved in with relatives or friends in response to unemployment. However, a national study found unemployment benefits actually reduce the likelihood workers will be forced to sell their homes by almost half.  Thus, extending benefits may help stabilize the housing market, while failing to do so will almost certainly make matters worse.

Finally, Congress must enact a temporary extended benefits program because the current federal program is so outdated in how it measures unemployment, not a single state qualifies for extended benefits—not even Michigan, where unemployment has surpassed 7 percent since August 2006.  

Over the past two months, we have lost 85,000 jobs, nearly half-a-million workers have left the labor force, and involuntary part-time employment has increased by 200,000 people. The economy is flailing, and failing the long-term unemployed. Congress should enact a federal extension of employment benefits now, and not wait until well into or after a recession, when the unemployment rate increases substantially.  The unemployed want to work, but the economy is not producing enough jobs.   By extending benefits now, Congress can—and should—help these workers and the economy overall. 

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