Bloomberg View: You Call This a Deal?; The Deceptive Liability of 99-Week Jobless Benefits

You Call This a Deal? ● The Deceptive Liability of 99-Week Jobless Benefits


The deal reached by the U.S. Congress to raise the $14.3 trillion debt ceiling spared the nation an immediate catastrophe while potentially setting a path for longer-term disasters. Financial markets’ initial euphoria over the agreement faded quickly. The dollar gained against the euro and the yen but declined to a record low against the Swiss franc. The markets’ response underscores an unfortunate reality: While the government may have averted a self-inflicted disaster, it hasn’t solved fundamental problems and appears to have created new ones. What the U.S. needs is a deficit reduction plan to address its long-term fiscal gap without weighing too heavily on a weak recovery. Instead, it’s getting the opposite: immediate spending cuts that threaten the recovery in the short term but aren’t substantial enough to fix long-term budget problems.

Make no mistake: The U.S. is a wealthy country that can afford to solve its budget problems. Closing the fiscal gap will require political leaders to embrace more ambitious policies and to build popular support for the sacrifices they will entail. These tasks will only be more painful if markets ultimately force them on us. Bold measures—including overhauling entitlements, rethinking the uniquely dysfunctional U.S. tax code, and considering a federal value-added tax—must be on the table. At an estimated 30.5 percent of gross domestic product in 2011, the total tax burden on Americans is the lowest among the Group of Seven industrialized nations.

In addition to fiscal restructuring, the U.S. needs political renewal. The debt ceiling deal was nurtured in a hothouse of ideology and blossomed in a storm of political machinations that put the nation at risk. Having successfully held the economy hostage to achieve their aims, House Republicans established a template for the aggrieved, reckless, and intractable partisans of any future Congress. The danger did not end with Monday’s vote.

The resulting accord is almost wholly uninformed by the nation’s actual economy, demographic trends, or social reality. In addition to stalled economic growth, we have an aging population and growing inequality, with roughly a third of the nation’s wealth controlled by 1 percent of our citizens. The deal amounts to complete denial of these facts by our political leaders. That includes President Barack Obama, who has largely ignored the long-term dangers posed by deficits in his budget proposals and who failed, inexplicably, to endorse the sensible suggestions of his own deficit reduction commission.

This agreement is an unholy and bipartisan mess. But it must be made to work. Congress should use the breathing room it provides to find creative long-term fiscal reforms that focus not just on avoiding crisis—but on creating a government that’s smarter, fairer, and more innovative. Done the right way, the boring work of crafting budgets can be an edifying national experience. We’ve seen quite clearly what happens when it’s done the wrong way.


In 2009, Congress extended jobless benefits to 99 weeks, the longest period in U.S. history. Those payments were meant to help unemployed workers get through a tough recession, while shoring up a faltering economy. Was it a wise approach? And with extended benefits expiring at yearend, should compensation be prolonged again?

Drawn-out benefits have been most effective at sustaining household income for displaced workers. State and federal programs will pay $129.5 billion this year in jobless benefits, according to Labor Dept. actuaries. Those payments provide roughly 50 percent of lost wages.

Nearly all that cash reenters the economy quickly as recipients pay for food, clothing, or housing. For that reason, jobless benefits have long been thought of as one of the most efficient ways to prevent consumer spending from collapsing during a slump.

Unfortunately, the 99-week experiment hasn’t been so successful in helping people get reemployed. Drawn-out benefits have caused job hunts to stretch out by almost a month—with no greater guarantee of success—according to economists Mary Daly, Bart Hobijn, and Robert Valletta of the Federal Reserve Bank of San Francisco. In a discussion paper, the Fed economists conclude that 99-week benefits have pushed up the U.S. jobless rate as much as 0.8 percentage points. The long-term unemployed now account for nearly half of all people out of work, an unusually high share.

Until this downturn, jobless benefits never stretched beyond 65 weeks, a level briefly tried in the late 1970s. More typically, states provide six months of benefits regardless of economic circumstances. The federal government adds three to six months of coverage during downturns, so job seekers can wait out a slump or be pickier about their next career move.

Offering almost two years of benefits runs the risk of sidelining workers rather than helping them. Displaced workers’ skills and job-hunting networks tend to be strongest immediately after losing a job. If claimants shun early prospects that aren’t ideal because of location, wages, or working conditions, there’s no guarantee of better work later.

Recoveries from most recessions since 1980 have taken place with unemployment compensation totaling 39 weeks to 52 weeks. Given the difficulties of getting new spending measures approved in straitened times, Congress would be well advised to adopt the 39-week standard for 2012, providing an extra 13 weeks of federal support beyond what states provide.

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