Can both sides be right on unemployment insurance?

12/12/2013 2:21 PM

01/17/2014 3:45 PM

Congress is once again debating whether to extend unemployment benefits. Democrats say it’s critical both for the people involved and the economy. Republicans say a falling jobless rate shows the economy is strong enough to let the extended benefits end.

It’s a rare issue for which the facts support both sides.

Republicans are right in saying that it’s unusual to offer emergency benefits when the economy recently posted a 3.6 percent quarterly growth rate and more than 200,000 people a month are being hired. Democrats are right in arguing that a wide range of labor-market indicators remain impaired and emergency benefits have never been withdrawn with long-term unemployment so high.

What’s really at stake isn’t unemployment insurance, rather an emergency program signed into law by President George W. Bush and continued by Barack Obama in his two terms.

With the U.S. economy in recession, Bush signed the Emergency Unemployment Compensation program into law on June 30, 2008, giving the long-term unemployed extended benefits on an emergency basis.

Most recently, the program was extended for another year as part of the American Taxpayer Relief Act of 2012, signed into law by Obama on Jan. 3, 2013.

Unemployment insurance originally became a national program as part of the Social Security Act of 1935. The act encouraged states to develop their own unemployment insurance laws, and within two years 48 states had adopted their own.

Originally, unemployment benefits lasted 16 weeks. Now, 26 weeks is the norm. In 1970, President Richard Nixon ushered in the federal-state program of Extended Benefits. This provided additional help for workers during periods of high unemployment, giving them another 13 weeks of unemployment benefits for a total of 39 weeks.

Since 1993, states could adopt alternative triggers for Extended Benefits, including a 6.5 percent unemployment rate for three consecutive months and other factors. Today, 34 states and the District of Columbia have an unemployment rate high enough to clear the highest bar to extra benefits.

Bush signed off on giving the long-term jobless another 20 weeks of help on top of the 39 weeks already available under the basic unemployment insurance provision and Extended Benefits, for a total of 59 weeks. Workers in high unemployment states could get even more time.

Less than a year later, Obama, signed the Worker, Home Ownership and Business Assistance Act, adding another 14 weeks across all states, and even more for high unemployment states. Eventually the period stretched to a maximum of 99 weeks of benefits with out a job.

In addition to helping the workers, Obama and Democrats say it helps stimulate the economy.

Citing a drop in the national unemployment rate to 7 percent, House Speaker John Boehner, R-Ohio, said on Dec. 6 that the strengthening employment picture “should discourage calls for more emergency government ‘stimulus.’”

Critics insist the benefits in an improving economy are a disincentive to work.

“We need more jobs, not longer unemployment,” said Martin Regalia, chief economist for the U.S. Chamber of Commerce, adding that job skills deteriorate with longer unemployment. He wants more focus on retraining for new employment.

In the latest nationwide read of unemployment, in November, the Labor Department determined that 4.1 million Americans were unemployed for 27 weeks or longer, comprising 37.3 percent of the jobless. Using the White House’s math, 2.8 million of them could continue to collect benefits while 1.3 million would not if the program ends as scheduled on Dec. 28.

The stubbornly high rate of long-term unemployment, despite the recent uptick in economic data, is why supporters argue for another extension.

“We’re four and a half years into the recovery and we’ve seen very little actual improvement,” said Heidi Shierholz, a labor economist with the center-left Economic Policy Institute.

Unemployment insurance was not meant to be permanent, but the aftermath of the Great Recession is quite different than past downturns, insisted Shierholz.

“It’s temporary because the period of weakness is supposed to be temporary,” she said, noting that labor markets remain impaired.

Her view is shared in some conservative circles. Michael Strain, a research fellow with the free-market think tank American Enterprise Institute, is sympathetic to the idea that the benefits have been extended for an unusually long period of time, given that the Great Recession ended four years and six months ago.

But the duration, said Strain, is not the proper focus.

“A better metric is . . . the state of the labor market,” Strain said.

In past recessions, he said, extended unemployment benefits ended when the long-term unemployed represented about 1.3 percent of the workforce.

“Today, the long-term unemployment rate is well above 2 percent. If we cut off benefits now, we’ll be doing it with significantly higher rate of long-term unemployment,” said Strain. “This is not a typical recession. . . . I think some of my friends on the right disagree with me on this. I think it’s something that reasonable people can disagree on.”

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