The Case for Extending Jobless Benefits

Paula Dwyer writes editorials on economics, finance and politics for Bloomberg View. She was London bureau chief for Businessweek and Washington economics editor for the New York Times, and is a co-author of “Take on the Street: How to Fight for Your Financial Future.”
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The big boot begins at midnight Dec. 27. That's when unemployment checks stop coming for 1.3 million people who have been collecting benefits for more than six months. By July, another 1.9 million people will get the boot from extended benefits. By the end of 2014, 1.6 million more will be kicked off, totaling about 5 million Americans.

"Neglecting to extend this vital lifeline to millions of workers is simply immoral," House Minority Leader Nancy Pelosi said today. Morality is a tough concept in politics. Many Republicans, after all, believe abortion and tax increases are immoral. It's better to focus on the economic and political consequences of not extending unemployment benefits; they are easier cases to make.

The economics are largely positive. Congress has extended long-term jobless benefits -- meaning, beyond the normal 26 weeks -- 11 times since the recent recession, with President George W. Bush making the first request in 2008. Employment, tax revenue and gross domestic product have all been greater because of extended benefits. The Congressional Budget Office says the same would be true for 2014 if Congress spent the $25 billion needed to maintain benefits through the year.

As always, there are downsides. Long-term unemployment benefits have cost taxpayers $255 billion since 2008, increasing the national debt. But debt keeps declining as the economic recovery picks up steam, and the stimulus that unemployment benefits provides will keep the virtuous cycle going next year.

Without unemployment insurance, the almost 5 million long-term jobless will become all but invisible, statistically speaking. Workers whose benefits are cut off are likely to stop looking for jobs and therefore won't be counted in the official statistics.

Michael Feroli, chief U.S. economist at JPMorgan Chase & Co., estimates that the unemployment rate could drop as much as half a percentage point for this reason. That doesn't mean the economy is better off. If anything, the newly invisible could become permanently unproductive, the economic consequences of which might last for decades.

The politics also favor an extension. Maintaining long-term jobless benefits, it seems, is the rare issue on which voters agree even across party lines. A Dec. 19-20 Public Policy Polling survey even finds that lawmakers may put their re-elections at risk next year if they don't vote to renew benefits.

The poll shows that, in key swing congressional districts, voters in both parties, as well as independents, overwhelmingly oppose letting extended benefits expire. Even in House Speaker John Boehner's home district in Ohio, 52 percent of Republicans said they favor an extension.

So who are these 5 million? You may be surprised to know that 17 percent of the long-term unemployed hold a college degree, compared with 34 percent of the employed. Those with at least some college make up 28.6 percent.

The long-term unemployed are spread evenly across the entire age distribution. Most of them are single (63 percent), male (55 percent) and white (50.8 percent). Blacks are disproportionately represented, making up 22.6 percent of the long-term unemployed while making up only 10.5 percent of the employed. Hispanics make up 19 percent of the long-term unemployed and 15.7 percent of the employed.

Twenty-three percent of the long-term unemployed had worked in construction and manufacturing. They live mostly in the West and the South, with workers in Nevada, California, Illinois and Georgia among the hardest-hit.

With those demographics, you would think more Republicans would be on board. When Senate Majority Leader Harry Reid brings up legislation in early January that would renew benefits for three months, he should remind his colleagues of the economic truth and political consequences of long-term unemployment, and leave morality for the preachers.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Paula Dwyer at pdwyer11@bloomberg.net