Should unemployment benefits be extended?

Mitchell Hartman Nov 26, 2010


Tess Vigeland: So we’ve just heard that it’s shaping up to be a not-very-festive, nail-bitey-type-of-holiday season for lots of American families struggling through long-term unemployment. So what about the debate over extending jobless benefits?

Marketplace’s Mitchell Hartman has been following this story and joins us from Oregon Public Broadcasting in Portland. Hi, Mitchell.

Mitchell Hartman: Hi Tess.

Vigeland: So, first, let’s just review where we are with these unemployment extensions and the battle to fund them in Congress.

Hartman: Well, in every recent recession, Congress has stepped up to pay for what are called “extended unemployment benefits.” They kick in after six months. That’s when people run out at the state level. Right now, you can get up to 99 weeks; it’s nearly two years. The checks average around $300 a week. This is expensive for taxpayers. We’ve spent more than $100 billion so far. Work it, it’s like one-eighth of the total stimulus. The programs run dry twice, people stopped getting their checks and then Democrats were able to eke out more funding. But the money runs out again on Tuesday. So far, Democrats haven’t been able to do anything about it.

Vigeland: Presumably, they’ll keep trying?

Hartman: Yeah, they’ll definitely keep trying. But you know, it’s getting harder as conservative Republicans, who are all over deficit spending, gain more power. A lot of Republicans would actually like to vote for the benefits. They’re popular in opinion polls, and we’ve never cut off benefits with unemployment so high. But, Republicans blocked a funding bill for this last week; they said it added to the deficit and it wasn’t off-set by spending cuts. There’s a chance of a deal by the end of the year that would be maybe be unemployment benefits for Democrats and more tax cuts for Republicans.

Vigeland: Ah yes, the tax cuts that are set to expire. But meanwhile, potentially millions of people would stop getting checks. What does that do to the economy?

Hartman: Extended unemployment is just about the biggest the bang you could get for the buck with stimulus spending. The Congressional Budget Office has done a study and estimates for every dollar in benefits, you get almost a $2 economic boost. And that’s because the money churns around locally, in places like grocery stores and laundromats and repair shops.

Heidi Schierholz of the Economy Policy Institute explained to me that unemployed people also live hand-to-mouth, so it’s instant stimulus.

Heidi Schierholz: Those are the folks that are going to have essentially no choice but to spend it immediately in their local economies. So that’s essentially $5 billion going through the long-term unemployed to businesses. And so if we don’t extend those benefits, that money’s taken out of the economy and businesses will have to fire people.

Hartman: Now, that $5 billion a month that’s the cost of benefits, Schierholz admits it is serious money to be adding to the deficit. But not spending it could cut GDP, maybe by almost 1 percent. And we don’t have a lot of GDP to spare right now.

Vigeland: But as you said, there is a cost to these extended unemployment benefits — you mentioned higher deficits, and of course, also not great for GDP either.

Hartman: Well, right, and that’s the argument that conservative economists and politicians are making. There’s also another argument, and that one says, keep extending benefits and people won’t look hard for work. Instead they’ll hold out for something better than that $300-a-week check. The problem is that right now there are very few jobs, maybe one for every four or five people looking for a job. So in the short run, you’re likely to just get a lot of desperate people — not necessarily desperate people who suddenly can find jobs.

Vigeland: Alright. Marketplace’s Mitchell Hartman joining us from Portland. Thanks.

Hartman: You’re welcome.

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