Shortening Unemployment Benefits Will Help Jobless

August 12, 2011

In 2009, Congress extended jobless benefits to 99 weeks, the longest period in U.S. history.  Those payments were meant to help unemployed workers get through a tough recession, while shoring up a faltering economy.  Was it a wise approach?  And with extended benefits expiring at year's end, should compensation be prolonged again, asks BusinessWeek.

  • State and federal programs will pay $129.5 billion this year in jobless benefits, according to Labor Department actuaries.
  • Those payments provide roughly 50 percent of lost wages.
  • Nearly all that cash reenters the economy quickly as recipients pay for food, clothing or housing.
  • For that reason, jobless benefits have long been thought of as one of the most efficient ways to prevent consumer spending from collapsing during a slump.

Unfortunately, the 99-week experiment hasn't been so successful in helping people get reemployed.

  • Drawn-out benefits have caused job hunts to stretch out by almost a month -- with no greater guarantee of success -- according to economists Mary Daly, Bart Hobijn and Rob Valletta of the Federal Reserve Bank of San Francisco.
  • In a discussion paper published this month, the Fed economists conclude that 99-week benefits have pushed up the U.S. jobless rate as much as 0.8 percentage points.
  • The long-term unemployed now account for nearly half of all people out of work, an unusually high share.

Protracted unemployment brings about a cascade of problems, including poorer health and a slim likelihood of ever regaining prior earning power, according to Columbia University economist Till von Wachter.

Source: "Shortening Unemployment Benefits Will Help U.S. Jobless," BusinessWeek, August 2, 2011.

For text:

http://www.bloomberg.com/news/2011-08-03/shortening-federal-unemployment-benefits-will-help-jobless-in-u-s-view.html 

For study:

http://www.frbsf.org/publications/economics/papers/2011/wp11-05bk.pdf

 

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