When Unemployment Doesn’t Work

By Isaac Shapiro and John Springer

Published May 07, 2004, issue of May 07, 2004.
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As the election-year debate proceeds over what policies can best promote the creation of new jobs, there remains a simple, inexpensive step the federal government can take right now to help many of the people hit hardest by the poor job market. That step, endorsed by public officials from Senator Hillary Clinton to the chairman of the Federal Reserve, Alan Greenspan, is to restart the temporary federal program that assists the long-term unemployed.

Congress created that program, called Temporary Extended Unemployment Compensation, two years ago in response to the economic downturn. Congress has created similar programs in past recessions to give extra weeks of benefits to workers who run out of regular, state-funded unemployment benefits without finding a job.

But this time, unlike in previous recessions, Congress let the temporary program die before the job market had recovered. Since late December, when the program began phasing out, roughly 1.5 million workers have run out of regular unemployment benefits and have received no extra help from the federal government.

In no other period of similar length on record, with data going back to 1971, have so many workers run out of regular unemployment benefits and received no extra help. Moreover, this number continues to rise with each passing week.

What is happening to these workers? The fortunate ones have been able to find jobs after only a brief time without a paycheck or an unemployment check. Many of the less fortunate, though, have seen their lives unravel.

One study, by MIT economist Jonathan Gruber, found that four-fifths of workers who became unemployed had, at the time they lost their jobs, savings that represented less than two months’ worth of their income. Another study, by the Congressional Budget Office, found that while only about 7% of the long-term jobless in the study had monthly incomes below the poverty line before losing their jobs, half would have been poor without an unemployment check.

In other words, a long spell of unemployment can devastate not only a low-income family, but also one that used to be solidly in the middle class. The story of the slippery slope into poverty is repeated in numerous personal accounts submitted to an online forum organized by the National Employment Law Project:

“My unemployment has run out. My credit is ruined. Now I am in danger of losing my home.”

“I am a 63 year old senior citizen who lost her job in Nov. of 2003. And my unemployment is about to run out. I need to work because my social security is not enough to live on.… I may be sleeping in my car soon because I can’t pay my rent.”

“My extended benefits have expired and I am now living with my parents. I had to declare bankruptcy and I had my automobile repossessed.”

“My unemployment has run out.… My wife is on total disability with cancer and we will be applying for food stamps, Medicaid and social security income. I am in default on my mortgage, having to pay medical bills, Cobra insurance, etc.… I hope we all can get through these tough times.”

“20 years same industry laid off with merger and ‘cost cutting.’ Temp. jobs off and on; not enough to survive; all savings gone; retirement cash out is next; after that I don’t know.… Haven’t had medical insurance in 4 years. We’re at bottom and starting over after working 27 years.”

Helping these families is in everyone’s interest. When record numbers of people are left without jobs or unemployment insurance — as is happening now — that also slows down the national economy, since these people have very little income to spend. Thus, federal assistance not only enables jobless workers to hold their lives together as they look for work, but also strengthens the economy as a whole.

Moreover, restarting the federal program for the long-term unemployed would cost less than $1 billion a month. In contrast, the tax cuts that President Bush has signed since taking office will cost nearly $300 billion this year alone. While these tax cuts were enacted largely in the name of job creation, there are roughly 2 million fewer jobs today than before the downturn began.

And unlike the tax cuts, which are being financed through huge budget deficits that future generations will have to repay, the funds to restart the federal unemployment program have already been set aside in a trust fund.

Nevertheless, despite majority support in both the House and Senate for resuming federal aid, congressional leaders have prevented that from happening. Opponents of federal aid have two main arguments.

First, they claim that the job market isn’t very bad and is starting to improve. The unemployment rate is indeed lower than it has been in past recessions, but a big reason for this is that an exceptionally large number of adults have decided not to participate in the labor force. That is a sign of job market weakness, not strength.

Similarly, while the total number of jobs in the economy has begun to rise again in recent months, it remains 2 million below pre-recession levels, as noted earlier. The recovery of the job market still has a long way to go.

More importantly, the real measure of the need for the federal program is the number of jobless workers who have exhausted their regular unemployment benefits and are going without aid, since these are the workers the program was created to assist. As noted, there are more “exhaustees” today than at any time on record.

Opponents’ second main argument is that providing longer unemployment benefits will encourage workers not to look for jobs. In recent testimony before Congress, Greenspan stated that this concern does not currently apply because the job market remains so weak.

“[W]hen unemployment is created through no fault of workers’ actions,” Greenspan explained, “then it is clearly to our advantage to find ways of creating support in our system. And as a consequence, in times like this I have supported the issue of extension of unemployment insurance.”

After months of silence, the White House finally said Bush would sign a bill restarting the federal program. But Congress is unlikely to approve such a bill if the president doesn’t push it to address this issue — and thus far he has failed to do so. It’s long past time for him to act.

Isaac Shapiro is a senior fellow at the Center on Budget and Policy Priorities. John Springer is a senior writer at the center.

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