Economists Shoot Down WSJ's Claim That Extending Unemployment Harms The Unemployed
Research ››› ››› REMINGTON SHEPARD
The Wall Street Journal attacked a congressional deal to extend unemployment insurance, arguing that jobs are now "easier to find" and that additional benefits would delay workers' re-entry into the workforce. But economists agree that at this point in the economic recovery, it is "vital" to extend unemployment insurance through the end of the year; moreover, without the extension, nearly 5 million jobless people could lose benefits by the end of the year.
Congress Agrees To Deal To Extend Unemployment Insurance
CBS News: "Congress Set To Pass Payroll Tax Cut, Unemployment Benefits." On February 16, CBS News reported:
The House and Senate are set to act on a deal that extends the payroll tax holiday and unemployment insurance as early as tomorrow.
Congressional negotiators signed off on the $150 billion package today that would extend the program and tax cut through the end of the year.
The deal also tackles other pending issues in need of resolution: It prevents doctors who treat seniors on Medicare from seeing a nearly 30 percent pay cut from the federal government at the end of this month.
In exchange, Republicans secured key concession on unemployment insurance. The maximum number of weeks unemployed Americans would be able to receive benefits is 73, which is fewer than the current maximum of 99 weeks in states with unemployment rates of 9 percent and higher.
Republican lawmakers also demanded change to how unemployment insurance is administered. In the deal, states would be able to require drug testing for anyone looking for work. It also would make it federal law that beneficiaries must be looking for work while receiving benefits. [CBS News, 2/16/12]
WSJ Claims Unemployment Extension Harmful To "Employers, Employees And The Unemployed"
WSJ Calls Unemployment Insurance A "De Facto Welfare Program" And Claims It Harms "Employers, Employees And The Unemployed." In a February 15 editorial, The Wall Street Journal claimed:
[F]or the last three and a half years those payments -- about 35% to 40% of the worker's last pay check -- have been extended eight times to an all-time high 99 weeks in many states. So now taxpayers pick up the check for as much as two years of not working, even as jobs become easier to find.
Republicans are at least trying to reform this de facto welfare program. The House wanted to cut the time limit to a still-generous 59 weeks, while Senate Democrats demanded 93. The tentative deal that may be voted on this week reduces that to 63 weeks for those states with a jobless rate at the national average or below. States with a rate above 9% -- there are now 17 -- would be eligible for a maximum of 73 weeks.
Democrats resisted even these requirements, and they reject the idea that these benefits discourage recipients from finding a job until after the checks stop. But nearly every study reveals the opposite -- that extending benefits extends the length of time that people stay unemployed.
Republicans deserve credit for trying to stop this madness, which is unfair to the millions of Americans who work, especially those who may take a job at lower pay because they don't want to sit on the dole. The faster jobless insurance returns to 26 weeks, the better for employers, employees and the unemployed. [The Wall Street Journal, 2/16/12, emphasis in original]
But Experts Agree Extending Unemployment Insurance Is "Vital" For Unemployed
Former Federal Reserve Official: Five Million Could Lose Benefits Without Extension, Which Would Create A "Serious Hole In The Safety Net." In a February 13 Wall Street Journal op-ed, former vice chairman of the Federal Reserve Alan Blinder wrote:
It's an even worse time to take away long-term unemployment benefits. In normal times, benefits run out after 26 weeks. But since 1948, Congress has routinely extended the benefits period whenever the unemployment rate exceeded 8%, generally under the Emergency Unemployment Compensation (EUC) program.
Because of the extraordinary job losses and dearth of hiring since 2008, Congress broadened the EUC program several times, ultimately reaching 79 weeks. Going even beyond that, Congress added the Extended Benefits (EB) program, which provides an additional 20 weeks of benefits--for a total of 99. It's the EUC and EB programs that are now at political risk.
In stark contrast with all U.S. experience since the Great Depression, over 42% of today's unemployed have been jobless for more than 26 weeks. That's an extraordinarily high number. It means, among other things, that more than 18 million Americans have drawn on the EUC or EB programs since 2008.
If Congress fails to maintain this assistance, about 1.3 jobless people will lose their benefits at the end of this month. In fact, due to a quirk in the EB formula, some will start losing them even sooner. As the year wears on, that number will rise closer to five million. Isn't that a serious hole in the safety net?
Eventually, the U.S. job market will return to normal, and unemployment benefits will drop back to the standard 26 weeks. Eventually, a lot of things will happen. But with roughly four job seekers for every vacant job right now--compared to just one and a half before the recession--times are far from normal. [The Wall Street Journal, 2/16/12]
Moody's Analytics' Zandi: UI Extension "Vital." A February 7 post on The Hill's On The Money blog reported that Moody's chief economist Mark Zandi called extending unemployment insurance "vital":
Lawmakers should avoid putting any restrictions on unemployment benefits but should find a way to cover the cost for a 10-month extension, an economist told a joint congressional panel on Tuesday.
Zandi did urge caution on paying for the bill considering the cuts already set to go into effect next year -- "there's a lot of fiscal restraint coming" and pay-fors should be considered for further down the road, a thought in line with advocates of jobless benefits who say paying for jobless benefits quickly would negate its economic benefits.
The lack of an agreement on a payroll tax cut and unemployment benefits bill will cut into economic growth by about 7/10th of a percent and create about 500,000 job losses while the economic recovery skates on thin ice.
Zandi said it is "vital" to extend federal emergency unemployment benefits for the rest of the year along with a payroll tax cut. [The Hill, 2/7/12]
CBPP: "Current Economic Conditions Justify Continuing Federal Emergency UI At The Levels In Place Last Year." In a February 3 statement, Center For Budget and Policy Priorities' (CBPP) chief economist Chad Stone noted:
The recovery still needs a boost, and besides giving critical support to unemployed workers, unemployment insurance is one of the highest bang-for-the-buck boosters that policymakers have in their arsenal. Under current law, however, the provision of additional weeks of emergency UI to workers who exhaust their regular UI benefits (after 26 weeks in most states) and the payroll tax cut that policymakers enacted at the end of 2010 are scheduled to expire at the end of this month, contributing to CBO's dim view of near-term economic growth. The President and Congress must extend them through the end of the year.
Current economic conditions justify continuing federal emergency UI at the levels in place last year. Reducing the number of weeks of federal benefits, as proposed in the House-passed bill of December, would take purchasing power out of the economy and weaken the recovery. Other proposals in the House bill -- denying benefits to workers with the requisite work history because they lack a high school degree or equivalent, forcing recipients to submit to drug testing, and allowing states to use UI funds for purposes other than paying benefits -- are misguided. They should not be part of the extension of the payroll tax cut and UI now under consideration in Congress.
Federal emergency UI is a temporary program; as the economy improves, the maximum number of weeks of benefits will fall as states' unemployment rates fall. Once a sustained jobs recovery is underway, creating 200,000 to 300,000 or more jobs per month on a regular basis, and people are returning to the labor force confident they can find jobs, federal emergency benefits should expire. But the highest unemployment rate at which past emergency UI programs have expired is 7.2 percent -- more than a percentage point below January's 8.3 percent. [CBPP, 2/3/12]
EPI: "It's Too Early To Cut Back On Unemployment Benefits." A February 1 report by the Economic Policy Institute (EPI) noted that the lack of improvement in "job-finding prospects" showed "that it is much too early to begin cutting back on how long unemployed workers can receive benefits." From EPI:
Congress is debating whether to renew legislation that extended unemployment insurance benefits for the long-term unemployed for up to 99 weeks (providing 73 weeks of federal benefits beyond the regular 26 weeks of state-financed benefits in most states). A good benchmark for testing whether this is a good idea is to determine if the long-term unemployment situation has improved enough to warrant discontinuing extended benefits or shortening the length of time unemployment benefits can be received.
The fact that there has been so little improvement in job-finding prospects for unemployed workers shows that it is much too early to begin cutting back on how long unemployed workers can receive benefits. Congress should reject suggestions to cut back on unemployment benefits; instead, it should renew through the end of 2012 the program of extended benefits as it currently stands. [EPI, 2/1/12]