Unemployment insurance is the primary mechanism to provide financial assistance to workers who are unemployed through no fault of their own. Yet in early June, Congress allowed unemployment benefits to expire. By July 3, the Department of Labor estimates that 1.7 million workers will see their benefits expire. If Congress does not address this problem by the end of July, 3.2 million unemployed workers will lose their unemployment benefits.
Yet, conservative members of Congress have balked at extending crucial unemployment insurance benefits to the long-term unemployed. This is both unfair to the unemployed, who face a historically difficult situation through no fault of their own, and economically unwise as it threatens the prospect of a strong and sustainable recovery. The consequences are obviously dire for those Americans out of work, and could be equally devastating for employed Americans who are counting on a sustained economic recovery to keep their jobs and boost their earnings.
Since long-term unemployment benefits have expired on June 4, Congress has repeatedly been unable to pass legislation to fix this problem. This has serious implications for the unemployed, as well as every one of us who still has a job. Allowing benefits to the long-term unemployed to expire threatens our nascent economic recovery. Economists across the board agree that unemployment benefits are one of the most important counter-cyclical economic policies we have.
This is an unusual situation: Never before has Congress cut off benefits when unemployment was so high. Since the 1950s, federal unemployment insurance extensions remained in place during recessionary periods until unemployment dropped to as low as 5.0 percent. The highest unemployment rate at which these extensions were allowed to expire was 7.2 percent, following the 1983 recession — substantially lower than our current rate of 9.5 percent.
The Federal Reserve believes our chances of swift economic recovery in the coming months are slim, noting that "Financial conditions have become less supportive of economic growth on balance" and that "the pace of economic recovery is likely to be moderate for a time." The economic policies of Congress and the Obama administration have helped the U.S. economy avoid an all-out catastrophe and then turned the economy toward recovery, putting over 1 million to nearly 3 million people to work so far, but unemployment continues to be unacceptably high and is projected to hover around its current rate for the near future.
Businesses of all sizes are not hiring because they do not see sufficient demand for their goods and services. The Federal Reserve is doing its bit, maintaining the federal funds rate — the interest rate at which banks can borrow from the Fed — at near zero for a year and a half, but there is no more room for monetary policy to boost the economy. That leaves fiscal policy — including especially unemployment benefits — as the primary tool government has to increase the demand for goods and services.
Alas, enough members of Congress don’t get it. Despite the lack of jobs and record-breaking unemployment, Congress has allowed federal unemployment insurance provisions to lapse. When Congress returns, they should quickly move to restore long-term unemployment benefits. But, they should also seek to ensure that benefits do not expire again until the economy has improved. The way to do this is to tie the expiration date for long-term benefits to each state’s unemployment rate: When a state’s unemployment rate has returned to normal, the unemployed in that state would no longer be eligible for long-term unemployment benefits.
This would put an end to the politicized haggling and make sure that the unemployment insurance system can do what it was designed to do: help the unemployed and boost spending in tough economic times. Surely conservatives would find it hard to object to an unemployment benefits formula tied to their own states’ economic realities.
Heather Boushey is senior economist at the Center for American Progress.