By Chris O’Leary
Citing the fact that 1.3 million Americans will lose UI benefits on New Year’s Day 2014, Congressman Sander Levin (D–Michigan) introduced a bill to extend emergency unemployment compensation (EUC) for one more year, but it has received scant attention in Congress. With the unemployment rate at seven percent and the percentage of long-term unemployed at an historic high, many American families still need the temporary income replacement provided by EUC. Furthermore, the nation’s economic recovery would benefit from the macro stimulus a EUC extension would provide. Therefore, Congress should act to extend EUC for another year.
EUC is a 100 percent federally funded temporary extension of unemployment compensation for unemployed individuals who have exhausted regular state unemployment insurance benefits. Four tiers of EUC providing up to 47 weeks of benefits are currently available in only two states, but unemployed workers in all states may qualify for at least 14 weeks of EUC after exhausting regular benefits.
Studies show that EUC is effective in helping families with someone unemployed from slipping further into poverty. A Congressional Budget Office (CBO) analysis by Acs and Dahl (2010) found that among households in 2009 with someone unemployed, those receiving EUC had a poverty rate of 19.6 percent while their poverty rate would have been 24.3 percent without EUC.
The CBO also rated EUC as the most cost effective and timely macro stimulus. Yang, Lasky, and Page (2010) of the CBO assessed 11 macro stimulus measures and placed EUC at the top of the list. The CBO report cited a large income multiplier because EUC recipients quickly spend all the benefits. Those benefits are spent time and again throughout the economy, and EUC is a one-time expenditure that does not add to the nation’s structural deficit.
Some have expressed concern that temporary income assistance, such as provided by the EUC, would discourage the unemployed from looking for and accepting work. However, recent studies by Farber and Valletta (2013) and Rothstein (2011) find only a small increase in unemployment related to EUC, and this is caused primarily by an increase in those actively searching for work and not a decrease in those accepting employment.
Since the end of the Great Depression, federal action has provided EUC every time the annual average national unemployment rate rose above six percent (see figure below). There have been eight federal EUC programs and each has been extended beyond its original duration. Starting with Eisenhower, each U.S. president except Johnson signed a bill initiating or extending EUC.1 Even though in November of this year the national average monthly unemployment rate dipped to seven percent, this level is high by historical standards. Indeed, President George W. Bush signed a EUC bill in March 2002 when the national average monthly unemployment rate was below six percent.
Because of the income assistance it affords many out-of-work Americans and the important stimulus it provides the macro economy, the extension should be done now so there is no lapse in EUC on January 1, 2014.
1 EUC history link: http://www.ows.doleta.gov/unemploy/spec_ext_ben_table.asp
Chris O’Leary can be reached at Oleary@upjohn.org.
Tag: Employment and Compensation
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