Extended unemployment benefits: Not what the labor market needs

Reuters

Job seekers apply for the 300 available positions at a new Target retail store in San Francisco, California August 9, 2012.

Article Highlights

  • If only the economic reality of the extended unemployment benefits program was as potent as the political rhetoric.

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  • The cost of extending the now-expired program for a sixth year is $26 billion.

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  • The labor market's current weakness is also unprecedented this far into a recovery.

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For more than five years, the federal government has provided extended unemployment benefits to workers who have lost their jobs through no fault of their own and remained out of work beyond the standard 26 weeks of unemployment benefits. This program expired on December 28, 2013, ending extended unemployment benefits for 1.3 million Americans. The White House claims that the expiration of this program is "unprecedented in the context of previous extensions to earlier unemployment insurance programs." In his weekly radio address, President Obama declared, "Instead of punishing families who can least afford it, Republicans should make it their New Year's resolution to do the right thing, and restore this vital economic security for their constituents right now." If only the economic reality of the extended unemployment benefits program was as potent as the political rhetoric.

While President Obama's concern over the plight of long-term unemployed workers is completely warranted, the Democrats' primary policy solution is wholly unsuitable. Consider these facts:
 
1. Since 2008, 24 million Americans have received federal extended unemployment benefits totaling $265 billion-roughly as much as was provided to low-income workers through the earned income tax credit during that period, though that program has proven effective at job creation. The cost of extending the now-expired program for a sixth year is $26 billion.

2. The duration and generosity of the program were unprecedented. Extending unemployment benefits from 26 to 52 weeks is typical during and immediately after an economic recession, but no temporary program has ever lasted this long or been as generous per individual as EUC has been in recent years. From 2009 through 2012, up to 99 weeks of benefits were available in many states, and even in 2013, benefits in some states reached 73 weeks.

3. The labor market's current weakness is also unprecedented this far into a recovery. Over four years after the last recession technically ended in June 2009, four million Americans have been unemployed more than 26 weeks-nearly double the number of long-term unemployed at the peak of the last recession. While the U.S. economy is adding jobs, the labor market remains seriously distressed. Because millions of workers have dropped out of the labor force entirely, the decline in the unemployment rate since 2009 exaggerates the recovery of the labor market.

While many on the left point to the labor market's weakness as justification for reinstating extended unemployment benefits, a simpler conclusion is that the economic recovery policies since 2008 have failed. In fact, even the White House recognizes that extended unemployment benefits will raise unemployment. The research the White House cites to advocate for 73 weeks of benefits implies that this will result on average in nearly 5 more weeks of unemployment per person in some states.

Congress should recognize the inherent ineffectiveness of trying to help people find work through a program that has evolved into a poorly operating welfare program, one that does little to help unemployed workers acquire new skills or relocate, and that has failed to deliver demonstrable results.

But Democrats have not given up and will continue to press their case in the coming weeks. Unfortunately, some Republicans are starting to cave, saying that if the $26 billion cost for renewing the program is offset with other cuts elsewhere in the federal budget, they could support an extension. But the biggest problem with extending benefits is not the budget impact, but rather the program's ineffectiveness: extending benefits would do virtually nothing to help the 4 million long-term unemployed workers in need of new skills and a stronger economy.

The public policy solutions necessary to reboot the economy and truly help the long-term unemployed are not the tried and failed policies of the last few years. Nor are they obvious or certain. But they do exist. Within the context of the unemployment insurance program, this could mean helping people relocate to find work or offering more assistance with job retraining. More broadly, reducing the fiscal uncertainty in Washington, pursuing tax reform on the federal level, and addressing the serious skills gap for those with less than a college degree could yield tangible benefits for all workers. These efforts require political leadership and cooperation but offer far greater potential than simply continuing the extended unemployment benefits program.

Alex Brill is a research fellow at the American Enterprise Institute, served as an adviser on tax policy to the President's Fiscal Commission, and is a former senior adviser and chief economist to the House Ways and Means Committee.

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About the Author

 

Alex
Brill
  • Alex Brill is a research fellow at the American Enterprise Institute (AEI), where he studies the impact of tax policy on the US economy as well as the fiscal, economic, and political consequences of tax, budget, health care, retirement security, and trade policies. He also works on health care reform, pharmaceutical spending and drug innovation, and unemployment insurance reform. Brill is the author of a pro-growth proposal to reduce the corporate tax rate to 25 percent, and “The Real Tax Burden: More than Dollars and Cents” (2011), coauthored with Alan D. Viard. He has testified numerous times before Congress on tax policy, labor markets and unemployment insurance, Social Security reform, fiscal stimulus, the manufacturing sector, and biologic drug competition.

    Before joining AEI, Brill served as the policy director and chief economist of the House Ways and Means Committee. Previously, he served on the staff of the White House Council of Economic Advisers. He has also served on the staff of the President's Fiscal Commission (Simpson-Bowles) and the Republican Platform Committee (2008).

    Brill has an M.A. in mathematical finance from Boston University and a B.A. in economics from Tufts University.

  • Phone: 202-862-5931
    Email: alex.brill@aei.org
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    Name: Brittany Pineros
    Phone: 202-862-5926
    Email: brittany.pineros@aei.org

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