By Vicki Needham - 11/25/10 03:39 PM EST
Emergency unemployment benefits are likely to lapse shortly after Congress returns from recess next week, affecting upward of 2 million people by the end of the year.
Lawmakers have until Nov. 30 to extend the current six-month extension of the benefits, but it’s unclear if they can reach an agreement in time for the unemployed workers who have exhausted their 26 weeks of state unemployment insurance.
"I think the chances of something happening in the first two days are slim, but leadership and the White House are both still very aware of the need for quick and aggressive action," said Judy Conti, federal advocacy coordinator with National Employment Law Project.
Upon returning to Washington after the Thanksgiving holiday, lawmakers will have only two days to work out a deal on an extension. Republicans and Democrats have been deadlocked over whether to pay for the legislation with other revenue or with tax increases.
Republicans have suggested paying for the benefits with unspent stimulus money. Democrats, however, have argued that extending the benefits has historically been considered emergency spending and say offsetting the cost would negate their simulative effect on the economy.
The lame-duck battle over the benefits could also play into the fight over extending the Bush-era tax cuts. While continuing the extra unemployment benefits up to 99 weeks is estimated to cost $65 billion, extending all of the tax cuts is estimated to cost $3.7 trillion over 10 years.
Rep. Jim McDermott (D-Wash.) has vowed to draw attention to the budget implications of voting for tax cuts and against an extension of the unemployment benefits.
While the estimated cost of continuing the extensions through 2011 is $65 billion, the actual cost when accounting for the revenue from taxes paid on wages from unemployment-supported jobs and savings on social safety net services is $25.9 billion, according to the Economic Policy Institute.
A Labor Department study showed that every dollar spent on unemployment insurance led to a $2 increase in economic activity. The National Employment Law Project says that has amounted to a $7 billion monthly boost for the economy.
Since 1950, the highest unemployment rate at which federal unemployment benefits have been cut off is 7.2 percent, according to the Center for Budget and Policy Priorities.
House Democrats attempted to pass a $12.5 billion three-month extension before leaving for the Thanksgiving holiday but were unable to get support from two-thirds of lawmakers.
Opponents of the extension say failing to pass the benefits would actually have a positive impact.
"The irony is that by refusing to extend unemployment benefits, Congress may have taken its most effective step toward reducing the unemployment rate," said Matt Mitchell, a research fellow at the Mercatus Center at George Mason University. "Numerous studies show unemployment falls significantly following the lapse of unemployment insurance, and specifically, a one-week increase in unemployment benefits extends the average recipient's unemployment spell by up to a week."
The White House and some House Democrats have expressed support for a 12-month extension that would last through 2011.
Passage is further complicated by Congress’s jam-packed lame-duck agenda, which includes decisions over whether to extend the Bush-era tax cuts, patch the alternative minimum tax and pass a continuing resolution or omnibus measure to keep the government running.
Extended unemployment benefits lapsed during the summer for nearly 3 million people who had been out of work for at least six months while Senate Republicans held up the measure over concerns that the $34 billion bill would add to the deficit.
Meanwhile, the number of people applying for unemployment benefits fell sharply last week to the lowest level since July 2008, a potential sign, combined with other economic indicators, that improvement in the job market is picking up pace.
Weekly unemployment claims dropped much more than expected, by 34,000 to a seasonally adjusted 407,000 in the week ending Nov. 20, the Labor Department said Wednesday.
The figures are more volatile during the Veterans Day and Thanksgiving holidays, and analysts will have to wait and see if the numbers continue to move lower.
Unemployment figures have hovered around in the mid-400,000s for most of the year, while the unemployment rate has remained persistently high.
The economy needs jobless claims to stay into the low 400,000s or high 300,000s to reflect stronger job growth in the private sector and propel the recovery.