Should the Emergency Unemployment Program be Extended?
What is EUC?
As of November, 2013 more than 4 million Americans hadn't worked in more than six months. After 6 months individuals are no longer able to receive benefits from their state, so rely on the federal extended benefits. These benefits are now coming to an abrupt end at the end of this year. This means many people still out of work will no longer have any type of income coming in at all. Those individuals barely getting by on small weekly unemployment pay will now have nothing.
The long-term unemployment situation doesn't seem to merit this cut. While the overall rate might have fallen slightly, the long-term unemployment rate still remains high at around 35 to 40 percent of the total unemployed. The average unemployed worker has been looking for work for more than 37 weeks. Cutting the longer term benefits will not reduce this rate. Sustained economic growth is needed to reduce long-term joblessness.
It is a well-known fact that those who have been unemployed for longer periods of time have a tougher time finding work, then those recently unemployed. But sustained economic growth will create additional demand for jobs and companies will again begin to hire at a faster rate. Starting with those recently unemployed and moving on to those who have been out of the workforce longer. Seems simple, but nevertheless, long-term unemployment is definitely a real problem in this economy.
US State Unemployment Rates
What is the Problem?
I don’t believe the problem is that people aren’t looking for work. Nearly one in three adults without a job has spent more than a year looking. Many people feel that extending the benefits will lead people to want to keep receiving benefits rather than work. Basically being “paid to be unemployed”. I don’t believe this to be the case at all. Consider any professional, such as myself working for a financial services company, earning a decent salary of around $80,000 per year. Layoffs and job loss hit this industry as well. Now that individual is out of work, looking for another position to utilize their skills in an industry still letting people go. They apply for unemployment benefits to ensure they can continue to pay their mortgage and feed their children. The maximum benefit in my state of Colorado is $513.00 per week. This averages out to $26,676.00 per year. That is a very significant drop in pay! I don’t envision very many individuals that would prefer to stay at home receiving less than 1/3 of what they are used to receiving.
What is the Answer?
Nevertheless history and statistics show that extending unemployment benefits does actually increase the length of unemployment. Research form Henry Faber of Princeton University and Robert Valletta of the San Francisco Fed shows that paying extended benefits increased the unemployment rate. They also found that paying the benefits for an extended time has a bad effect on long-term unemployment. Their research discovered that paying the long-term benefits caused the rate to be one-quarter higher than it would have been without the benefits. Basically they discovered that up to one million people were out of work for more than six months because they were receiving benefits.
However even with all the research and studies done, the great recession of 2009-2012 was much worse than a typical economic recession. Unemployment rates rose significantly higher than in previous recessions. In addition Gross Domestic Product also fell sharply. Thereby with economic demand so much weaker than typical, workers have had a much harder time finding work than in prior recessions. Despite the extension of long-term benefits, the number of those that hadn’t worked in more than 6 months has fallen slightly in the last year. So essentially some of the long-term unemployed are finding jobs, which is good news. However it isn’t clear if long-term unemployment would have fallen if the benefits hadn’t been extended.
At this point it seems that the US will now test whether American workers need to go through the short-term pain of losing unemployment compensation to benefit from the long-term gains of getting a job. That is what we are looking at if the benefits abruptly stop in the next couple of weeks. I just don’t believe that is the right course of action.
Does Anyone Really Have an Answer?
This is such a difficult situation we are in. I don’t think anyone really has the answer. But I do believe we are headed for trouble by eliminating this program. There are so many other programs that are truly being abused and continue to remain funded. These are the programs that truly need to be reevaluated. Before the creation of unemployment benefits, along with other social safety net programs, there was even more poverty then we see today. These programs were fought hard for and took decades to establish a decent standard of living, which is an integral part of our civilization.
In addition, I don’t feel it is in any way fair to discriminate against those out of the workforce for longer periods of time. I don’t think this makes them unemployable. Simply not working doesn't reduce a person’s skills or knowledge. It’s more likely that someone with no income whatsoever, with the loss of benefits, is likely to become homeless or destitute and therefor permanently harmed or disabled in some way. Then we are looking at an entire different circumstance of problems. Creating more homeless is not going to aid in the growth of our economy. Unemployment benefits are not about getting paid to stay home, they are about preventing homelessness.
It is the underlying problems that must be resolved. The USA must begin to take care of itself first and create real jobs for it’s citizens. This will in addition limit the demand for low paying jobs by limiting the supply of those willing to take those jobs. At this point there are simply way too many takers for any type of job at all and not enough to go around. There are so many educated and highly skilled looking for work that won’t even be considered for the lower paying jobs. It’s not a case of not wanting to work, these individuals can’t even seem to get in the door. In addition, It is also apparent that discrimination against those unemployed for longer periods must stop. But all in all, cutting off this means of helping people survive while continually looking for employment is sure to lead to catastrophe in my opinion.