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Impact of jobless benefits running out

Marketplace Staff May 28, 2010

Impact of jobless benefits running out

Marketplace Staff May 28, 2010


Bob Moon: It’s been two years since they started pushing benefits beyond their expiration limits at the state level. There are now more than 10 million people nationwide getting unemployment checks. And with these federal subsidies, the maximum they’re supposed to keep getting a check is 99 weeks. But since Congress hasn’t piled on more cash, people could start running out of benefits before time’s up. Today the House passed a bill to extend benefits through November. But the Senate left town without doing anything. Marketplace’s Mitchell Hartman joins us to explain. Hello, Mitchell.

Mitchell Hartman: Hi, Bob.

Moon: So where does this all stand now?

Hartman: Well, the House finally passed a funding bill today. But Democrats — those blue-dog Democrats who were worried about the deficit — were busy all week stripping out items to get the price tag down. That included federal subsidies to help unemployed people keep paying for heath insurance. But now with the Senate on recess and not back until June 7th, basically nothing more can happen until then at the earliest. And by mid-June, we’re already going to have seen 300,000 people run out of unemployment benefits.

Moon: Now certainly this disagreement is about the deficit — the cost of extending these benefits again and again. But isn’t it also partly about whether longer benefits are really good for the economy and good for the unemployed for that matter?

Hartman: Well, if you ask unemployed people, there’s no doubt that extended unemployment benefits are good for them. I mean, it’s good for their bank account at the very least. But there is an argument that extending unemployment benefits actually makes the unemployment rate go up and it keeps people unemployed for longer. Robert Shimer is at the University of Chicago. That’s one of those bastions of free-market economics where this argument holds up a pretty lot of weight.

Robert Shimer: There’s quite strong evidence that people either hold out for higher wages or maybe look a little less hard. Or they look for jobs which are closer to home. Or more of the type of job that they would like to get when unemployment benefits are more generous or less for longer.

And Shimer says that’s probably actually inflating the unemployment rate maybe as much as 1.5 percent. So let’s say we’d be at 8.5 percent unemployment instead of nearly 10 percent unemployment.

Moon: Now I’m assuming that view isn’t universal though.

Hartman: Well, no. Although actually, most economists will agree that better and longer unemployment benefits do let people hold out for a better and maybe a higher paying job. In fact, that’s partly what those unemployment benefits are there for. But that doesn’t mean that if people went off unemployment sooner they’d just be able to get off their butts, go out, and find a job. I’ve talked to a lot of unemployed people. And their response is well, what job? Keep in mind there’s more than five job seekers right now for every available job. Competition for those jobs is just brutal. Nearly half the unemployed have been looking for more than six months. And it’s taking longer than ever to find a job.

Moon: But let’s say people are more desperate — just applying for and grabbing whatever job they can land — wouldn’t that at least get more people working again?

Hartman: Well, you might see the unemployment rate actually go down some. Certainly it seems likely that wages would go down because suddenly you’ve got more people willing to work for anything they can get — even minimum wage. Maybe also employers wouldn’t offer as many benefits because they wouldn’t have to. There’s another impact, though, if you cut off these extended benefits. Gary Burtless at the Brookings Institution explained this to me.

Gary Burtless: All of these workers who are receiving unemployment benefits would have to cut their consumption spending, and so the money that is made available to them through extended benefits is also helping to boost consumption or at least hold it up to a higher level than it would have been if we had not helped these long-term unemployed.

And, you know, that’s probably about to happen. At least if Congress doesn’t come back and extend benefits again in June. That consumption, that stimulative effect of the extended unemployment benefits is probably going to start going away.

Moon: Well, this is a story that we’re going to have to come back to. Marketplace’s Mitchell Hartman, thank you.

Hartman: You’re welcome.

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