The supercommittee was unable to agree on a proposal to bring down our nation’s long-term budget deficit, but this is not a tragedy. Congress will have other opportunities to address the budget deficit in the coming year. The real tragedy is that the supercommittee had within its power the ability to improve our economy but failed to act.
The supercommittee could have taken steps to promote economic growth and job creation, which would in turn help improve our long-term budget picture. Specifically, it could have pushed to ensure that the long-term unemployed continue to receive benefits and that every working American continues to get a break on their payroll taxes.
Allowing unemployment benefits to expire will have serious implications. Economists across the board agree that unemployment benefits are one of the most important counter-cyclical economic policies we have because those out of work spend their assistance immediately. In the past few years, according to a detailed study by Wayne Vroman for the Department of Labor, benefits for the long-term unemployed led to the creation of about 700,000 new jobs each quarter.
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 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 percent.
Extending unemployment benefits is critical because our economy remains mired in one of the worst labor markets since the Great Depression. There are currently 13.9 million Americans unemployed, with the unemployment rate at or above 9.0 percent for 28 of the past 30 months. In October, the last month for which complete data are available, nearly half of those unemployed had been out of work for at least six months.
Currently, there are nearly five workers actively searching for work for every job available, compared to just one and a half job searchers per job opening before the Great Recession began in December 2007. Data from the Bureau of Labor Statistics confirms that the pace of job creation is slow. Over the past three months, the economy has added an average of 122,000 private sector jobs each month, while government has laid off an average of 4,000.
At this pace, it will take our economy about 5 years just to re-create all the jobs lost since the Great Recession began — never mind the many more jobs we need to create for our growing population.
Unemployment insurance is the primary mechanism to provide financial assistance to workers who are unemployed through no fault of their own. Yet if Congress does not address this problem by the end of December, more than 2 million unemployed workers will lose their unemployment benefits by February.
Conservative members of Congress balk at extending crucial unemployment insurance benefits to the long-term unemployed. They say we can’t afford it. But in fact we can’t afford not to, because it would threaten the prospect of a strong and sustainable recovery.
Fiscal policy — including, especially, unemployment benefits — is the primary tool government has to increase demand for goods and services. The Federal Reserve is doing its bit on the monetary front, maintaining the federal funds rate at near zero for nearly three years, but there is no more room for monetary policy to boost the economy. Businesses of all sizes are not hiring because they do not see sufficient demand for their goods and services.
Congress should move to ensure long-term unemployment benefits. But it 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 unemployment 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. Surely conservatives would find it hard to object to an unemployment benefits formula tied to their own states’ economic realities.
Lawmakers have some serious work cut out for them in the next few weeks. The best thing they can do for our nation’s long-term deficit is to start by ensuring the strength of key programs to protect the middle class and spurring the American economy toward lower unemployment.
Boushey is senior economist at the Center for American Progress.