What's the cost when unemployment benefits expire?

Statues of unemployed men standing in a unemployment line during the Great Depression at the Franklin Delano Roosevelt(FDR) Memorial September 20, 2012 in Washington, D.C.

On December 28, 2013, federal Emergency Unemployment Compensation benefits expire for 1.3 million Americans. Another 1.9 million of the long-term unemployed (those actively searching for work for six months or longer) will run out by mid-2014.

Before its Christmas recess, Congress passed a budget compromise but failed to extend the federal EUC program that pays benefits after people run out of state unemployment insurance checks, which typically last six months. Congressional Democrats say they’ll push to renew the program as soon as they’re back in Washington after the New Year. They argue that the U.S. has typically kept paying these extended benefits when unemployment is this high after a recession. Long-term unemployment, meanwhile, is at near-record highs, at 37.3 percent (November 2013).

Extending the EUC program next year would cost the federal government more than $25 billion, according to the Congressional Budget Office. Advocates for the unemployed argue that cutting off the funding shrinks consumer spending in the economy by even more. Recipients tend to spend unemployment benefits right away in the local economy on basic necessities such as food, rent, utilities, and medicine. That supports neighborhood retailers and sustains employment in high-unemployment areas.

The cutoff will hurt most in states with high long-term unemployment, explains Mitchell Hirsch at the National Employment Law Project. He cites in particular California, Arizona, Nevada, as well as states in the Midwest and Northeast such as New Jersey, Michigan, and Illinois. He points out that EUC sustains many older workers who suffer disproportionately from long-term unemployment after they’re laid off; many of them had well-paying, steady jobs, were closely attached to the labor force, were eligible for unemployment compensation, but have trouble getting back into the workforce.

Dusty Miller is 51 and lives near Rockford, Illinois—unemployment 10.5 percent. “We’re still seeing plants closing, we’ve seen a lot of business leaving the area,” Miller says.

Miller was director of defense contracts at Ryan International Airlines, which shut down early this year—he was kept on until February to help wind operations down. He’s been on unemployment since then. His wife is retired, and he says they aren’t living hand to mouth--not yet.

“Fortunately, I was in a position where we had planned for this and had monies tucked away for it,” says Miller. “Worst case, I’d go out and work at a 7-11 or something if I had to.” At the moment, he’s pursuing several prospects for management jobs in aerospace and manufacturing that he thinks will obviate that need.

At Totally You Hair Salon just off Interstate 90 in Rockford, manager Tammy Parker says she doesn’t see a lot of drop-off in spending among her middle-class clientele. She thinks even the unemployed will keep coming in, at least for a while.

“I think you find a way to color your hair, cover the grey,” says Parker. “If I’ve seen any kind of slump it’s in our aestheticians. People are maybe not getting a facial that they might have treated themselves to prior.”

In San Bernardino, California—unemployment 9.8 percent—Troy Ballard at Troy’s Beauty and Barber Salon says his business will definitely suffer from the cutoff of long-term unemployment benefits.

“It impacts us greatly,” he says, “because if you’re not employed you can’t get your hair done.”

Ballard hears plenty of stories in the chair, so he knows right away if someone’s hit a rough patch.

“Sometimes if I have a customer who’s been coming to me on a regular basis,” he says, “if they lose their job, I’ll still try to let them keep coming. They’re still getting interviews” and need to keep looking their best, he says.

Ballard’s generosity while people are unemployed—especially if they’ve run out of benefits—will help them spend whatever money they have on necessities: food, rent, and utilities.

About the author

Mitchell Hartman is the senior reporter for Marketplace’s Entrepreneurship Desk and also covers employment.

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