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Will the jobless benefits extension help?

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Tess Vigeland: You certainly don’t need a degree in financial literacy to know that being unemployed makes life much, much tougher. Although, I guess the more financially literate you are, the more prepared you’ll be in case that happens. But at the very least, people who lose their jobs have counted on unemployment benefits — until a couple of months ago when federal money for those benefits ran out and weren’t resuscitated by Congress until this week.

We asked economist Richard DeKaser whether the new extension means benefits are back to where they were for the unemployed.

Richard DeKaser: Almost, the previous set of benefits actually had a $25 kicker. It was part of the stimulus legislation. That’s not going to be part of the new benefits going forward. But in every other respect they will be fully reinstated. Additionally, there is going to be back payments made.

But before you start breathing a little easier, this new extension isn’t intended to be a long-term fix — it’s only effective until November 30.

DeKaser: Unless there’s a dramatic change in the labor market, we’ll be confronting the same reality again, of expiring benefits, people potentially rolling off the dole. And sadly, we’ll be back in the same place we’ve been in the last couple of months.

But there’s also the debate as to whether unemployment benefits actually discourage people from looking for work. DeKaser says there is evidence to back up that claim but with a big caveat.

Dekaser: Making benefits available for a longer period of time and making them more generous does discourage employment, but the magnitude of that is very very small. You could argue that in the current environment, job availability is still relatively slim and in their opinion, the difference in the jobless rate was only about four-tenths of a percentage point, as a consequence of these more extended and more generous unemployment insurance benefits.

Vigeland: And you know another aspect of this, that you often hear about is, look, if you take these unemployment benefits away from people who don’t have jobs, that’s money that is not going back into the economy.

DeKaser: Well, it stands to reason that this is one of the single most affective means of economic stimulus that we could possibly think of. Generally, the savings rate is somewhere around 3 or 4 percent. Now I think it’s fair to assume, unemployed people are doing less saving and more spending out of whatever income they can get. And what that implies is that virtually all of the money being provided is going directly into the economy.

Vigeland: Richard Dekaser is president of Woodley Park Research and you can also find him in the pages of Kiplinger’s Personal Finance magazine.

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