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Jobless Benefits Set to Expire

November 19, 2009 6:54 am 0 comments

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About one million laid-off workers will see their unemployment benefits end in January unless Congress acts quickly to renew existing federally paid extensions, according to a new survey and legislators and state officials.

The new law provided up to 14 weeks of federally paid aid to unemployed people who had exhausted existing state and federal limits, benefits that already lasted up to 79 weeks in many states. And for the majority of states with particularly high unemployment, it added six more weeks of payments, bringing the potential total to 99weeks.

But many legislators, state aid officials and struggling workers apparently failed to read the fine print. The added federal benefits were built on a series of previous extensions that are slated to end on Dec. 31, unless Congress renews these programs. People who lost their jobs after July 1 of this year, for example, would receive no federal extensions once their customary six months of state aid ran out.
I don’t think anyone should be worried about Congress acting to extend benefits, especially with elections coming up in 2010. My only problem with such legislation is that it treats symptoms and not the disease. Of course we can continually extend unemployment benefits until our debt implodes, but I don’t think that’s a viable option.
What we should be focused on is creating jobs. We have spent way too much money propping up banks that gambled depositors’ money away in risky securitized products, and not enough money stimulating job growth. It’s becoming more obvious by the day that our administration has mismanaged this crisis, especially as it pertains to the average person.
Here’s a brief look at the success of the stimulus measures passed earlier this year in terms of job creation. It’s clear from the graph below that government stimulus has failed to create jobs.

Here’s a look at the labor participation rate. The labor participation rate is calculated by taking the number of employed and “officially” unemployed (i.e. those still actively looking for a job), and dividing that number by the total labor force. A lower labor participation rate implies that people have simply given up looking for jobs, which means they are not accounted for in the “official” unemployment rate. Of course, this will tend to make unemployment statistics ‘less bad’.

The labor participation rate has fallen considerably in this recession. If we were to assume a normal labor participation rate of 67%, the unemployment rate would be north of 11%, which would be a post-WWII record.

The article continues:

Some nine million people now receive unemployment benefits, five million on the initial state programs and four million through federal extensions.

According to projections released Wednesday by the National Employment Law Project, an advocacy group that worked with state officials to develop the numbers, 474,111 unemployed workers will exhaust their state benefits in January and, in the absence of Congressional action, not receive any extensions.

An additional 581,000 workers will see their federal benefits end in January, the study said.

The vast number of people on extended unemployment benefits is troubling. As soon as props are removed from the system, we will experience quite a crash. I believe in the next couple of years, the market will force austerity on our government, as interest rates on our debt start to rise, reversing a two decade long secular bull market in bonds. At that point, things will start spiralling out of control- it is inevitable. The only question here is one of timing.