House Votes to Extend Unemployment Benefits for 13 More Weeks

The House of Representatives voted 331-83 yesterday to extend funding of unemployment payments for a further 13 weeks for ex-workers whose benefits were about to run out. This affects 1 million people currently out of work in 29 states with high rates of unemployment, and it will cost Uncle Sam $1.4 billion. Deferring a scheduled reduction in unemployment insurance tax paid by employers should cover the cost. This is the only bail-out the average American is likely to get out of the government, and it illustrates just how severe this recession is.

While the US is almost certain to have experienced positive economic growth in third quarter 2009, which ends in a week, unemployment is a lagging indicator in any economy. Businesses don't hire people until management is sure the demand for a firm's goods or services is strong enough to warrant a long-term commitment. In the meanwhile, some companies have to lay off workers because they have simply run out of resources to retain them.

In the US, unlike a great many other developed countries, policy makers view unemployment insurance as a short-term measure. Typically, an unemployed worker gets a few months of payments (at a greatly reduced level from the paycheck he lost -- $40 to $450 a week depending on the state in which the worker resides) and then, the system washes its hands of him. The theory is that if someone can't find work after a few months, that person wasn't trying and a little tough love is in order.

In a severe recession, such as the current one, that logic goes right out the window. As unemployment approaches 10% of the workforce, the other 90% with jobs tend to stay where they are for fear of joining the dole queue. There simply is an excess supply of labor relative to demand for it, and the labor market's rigidity increases. To address this, some state governments and the feds are considering tax credits for employers who hire the long-term unemployed. In New Jersey, the figure of $2,400 per job has been kicked around. That covers maybe two months of salary and benefits for a rather low-paid employee. It's clearly insufficient.

Unemployment is going to rise for another quarter or two, even if the recession is technically over. For a great many, the extra 13 weeks might not be adequate. However with the holidays ahead, there is a chance that a few more dollars in a few more pockets might speed up the recovery with the added demand. The bill is a stop-gap at best, and it doesn't address what happens to those whose benefits expire after January 1.

In all likelihood, it is too late to fix things for this recession, but there will be another someday, as sure as the sun rises in the East. It might not be a bad idea for two things to happen. First, the Senate should pass the bill as well so the president can sign it. Second, policy wonks need to come up with a better way of keeping poverty away from people who lose their jobs as part of an economic Pearl Harbor.

© Copyright 2009 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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