Why Extending Unemployment Benefits is So Important - For the Unemployed and the Economy as a Whole (2 posts)
1. A Good Deal for All - Further extending unemployment
insurance benefits will generate over 700,000 full-time-equivalent jobs while saving millions from poverty
(Heidi Shierholz and Lawrence Mishel - Economic Policy Institute)
2. Why the Lame Duck Congress Must Extend Jobless Benefits
for Hard-hit Families But Not Tax Cuts for the Rich
A Good Deal for All
Further extending unemployment insurance benefits will
generate over 700,000 full-time-equivalent jobs while saving
millions from poverty
by Heidi Shierholz and Lawrence Mishel
Economic Policy Institute (EPI)
Research and Ideas for Shared Prosperity
Issue Brief #288
November 4, 2010
[Note: All references to tables can be found in the original
On November 30th, the federally funded extended unemployment
insurance (UI) benefits are set to expire. These benefits
serve two very useful public purposes. One is to assist the
unemployed during the deepest and longest recession since
the 1930s. Less well known is the second purpose, which is
to boost spending in the economy and therefore generate jobs
at a time when we have substantial excess capacity and
unemployment. This issue brief calculates the impact on
employment of continuing the extended weeks of UI benefits
through 2011. It is an update to the July issue brief Two
for the Price of One (Mishel and Shierholz 2010), where we
estimated that spending related to the expansion of the
unemployment insurance system, both the regular program and
the expanded federal supports for the unemployed, generated
1.7 million full-time-equivalent jobs in the first quarter
of 2010 that otherwise would not have existed.
Table 1 gives the impact in terms of both gross domestic
product (GDP) and employment of continuing through 2011 the
federally funded unemployment insurance extensions that are
currently in place. (The numbers in this table are
calculated using the methodology described in the appendix
of Mishel and Shierholz (2010).) The estimated cost of
continuing the extensions through 2011 is $65 billion. The
economic impact of this spending is much higher, however,
because of its large "multiplier" effect. UI benefits for
the long-term unemployed give the economy a particularly big
boost because long-term unemployed workers are very unlikely
to have any choice but to immediately spend their
unemployment benefits. The resulting spending on rent,
groceries, and other necessities saves and creates jobs
throughout the economy. For this reason, government spending
on unemployment insurance benefits during a downturn is
recognized by the Congressional Budget office (CBO) as one
of the most efficient things that can be done to create new
jobs. Spending $65 billion on unemployment insurance
extensions will increase GDP by an estimated $104.7 billion,
which is roughly 0.7% of our $14.7 trillion GDP. This
increase in GDP translates into 488,000 payroll jobs. In
other words, extending the federally funded unemployment
insurance extensions through 2011 would not only be a
lifeline to the families of millions of unemployed workers,
it also supports spending responsible for the existence of
nearly half a million jobs.
Furthermore, it would not only create new jobs, it would
boost hours for workers who already have jobs. Both results
would be welcome improvements because this recession has
seen both job losses and cuts in hours for those with jobs.
Restoring hours means restoring weekly paychecks. In
addition to the nearly half million jobs supported by
continuing the UI extensions for a year, it would generate
over 12 million weekly work hours for people who already
have jobs. To get a sense of what these two factors (new
jobs plus more hours for workers with jobs) add up to, we
can look at the number of full-time-equivalent jobs created
or saved. This measures how many 40-hour-per-week jobs the
total hours created by the GDP boost would create. We find,
using the CBO's methodology, that the $65 billion spent on
unemployment insurance extensions through 2011 would support
723,000 full-time equivalent jobs. If this program is
discontinued, then the economy will lose these jobs.
Furthermore, the actual cost to the budget is far less than
the sticker price of $65 billion. The 723,000 full-time-
equivalent jobs created or saved means: (1) the government
will bring in more revenue from the taxes paid on the wages
earned by those who otherwise would not have jobs, and (2)
it will spend less on safety net measures (for example,
Medicaid and food stamps) related to unemployment. In other
words, when jobs are created, it adds to government revenues
and reduces government expenditures. Using a methodology
described in Mishel and Shierholz (2010), we find that of
the $104.7 billion increase in GDP related to continuing the
unemployment extensions through 2011, some 37.4%, or $39.1
billion, will be recouped both in higher revenues, as more
people and firms pay taxes, and in lower expenditures.
Consequently, the effective cost to the budget of continuing
the unemployment insurance extensions for a year is $25.9
billion instead of $65 billion. This means that the
continuation of unemployment insurance extensions through
2011 will create 723,000 full-time-equivalent jobs at a cost
of less than $36,000 per position. That alone is a good deal
for all involved, but when we remember that these
expenditures will at the same time be providing a lifeline
to millions of families of the long-term unemployed during
the worst downturn in seven decades, the case for continuing
the extensions could not be clearer.
Mishel, Larry and Heidi Shierholz. 2010. Two for the Price
of One: Providing Unemployment Insurance Both Assists the
Unemployed and Generates Jobs. Issue Brief #281. Washington,
D.C.: Economic Policy Institute.
[Heidi Shierholz joined the Economic Policy Institute in
2007. Her areas of research include trends in employment,
unemployment, and compensation, income and wealth
inequality, the low-wage labor market, the minimum wage, and
the gender wage gap. She previously worked as an Assistant
Professor of Economics at the University of Toronto.
Lawrence Mishel, a nationally-recognized economist, is
President of the Economic Policy Institute, a role he
assumed in 2002. Dr. Mishel first joined EPI in 1987 as
Research Director. He has co-authored 11 editions of The
State of Working America, a book which former U.S. Labor
Secretary Robert Reich says "remains unrivaled as the most-
trusted source for a comprehensive understanding of how
working Americans and their families are faring in today's
economy." The State of Working America has been an
invaluable resource in newsrooms, classrooms, and halls of
power since 1988.
Economic Policy Institute
1333 H Street, NW
Suite 300, East Tower
Washington, DC 20005-4707
(202) 775-8810 telephone
(202) 775-0819 fax
Why the Lame Duck Congress Must Extend Jobless Benefits For
Hard-hit Families But Not Tax Cuts For the Rich
by Robert Reich
November 17, 2010
America's long-term unemployed - an estimated 4 million or
more - constitute the single newest and biggest social
problem facing America.
Now their unemployment benefits are about to run out, and
the lame-duck Congress may not have the votes to extend
them. (You can forget about the next Congress.)
The long-term unemployed can't get work because there are
still five people needing work for every job opening. And
the long-term jobless are often at the end of the job line:
Either they don't have the right skills or enough education,
or have been out of work so long prospective employers are
nervous about hiring them.
They're also a big problem for the economy. Without enough
money in their pockets, they and their families can't pay
their mortgages, which keeps fueling the mortgage crisis.
Nor can they replace worn-out cars and clothing, or buy
much of anything else, which is a drag on the economy.
Republicans and many blue-dog Dems say we can't afford
But these are many of the same people who say we should
extend the Bush tax cuts for the wealthy for at least
another two years.
Extending the Bush tax cuts for the top 1 percent would cost
an estimated $120 billion over the next two years. That's
more than another unemployment benefit extension would cost.
The unemployed need the money. The rich don't.
Moreover, the top 1 percent spends a small fraction of their
income. That's what it means to be rich - you already have
most of what you want. So extending the Bush tax cut to them
won't stimulate the economy.
Yet people without jobs, and their families, are likely to
spend every penny of unemployment benefits they receive.
That will go back into the economy and save or create jobs.
A Labor Department report shows that for every $1 spent on
unemployment insurance, $2 are spent in the economy. If you
don't believe the Labor Department, maybe you'll believe
Goldman Sachs analyst Alec Phillips, who estimates that if
unemployment benefits are allowed to expire, the American
economy would slow by a half a percent.
Republicans are still spouting nutty Social Darwinism.
Cutting taxes on the rich is better than helping the
unemployed, they say, because the rich will create jobs with
their extra money while giving money to the unemployed
reduces their desire to look for work.
Rubbish. The Bush tax cuts on the top never trickled down.
Between 2002 and 2007 the median wage dropped, adjusted for
inflation. And job growth was pathetic.
Jobless benefits don't deter the unemployed from finding
work. In most states, unemployment benefits are a fraction
of former wages. And as long as unemployment remains sky-
high, there are no jobs to be had anyway.
Besides, the economic downturn was hardly their fault. If
anyone is to blame it's the high-flyers on Wall Street who
gambled away other people's money, and the rich denizens of
corporate executive suites who have sliced payrolls in order
to show higher profits (and get more money from their stock
So why reward the people at the top with an extension of the
Bush tax cut that will blow a hole in the budget deficit?
And why fail to extend jobless benefits to hardworking
Americans who got the boot?
Quick action is needed. Jobless benefits begin to lapse in
just two weeks. Two million unemployed workers will be
affected. If Congress fails to act, another 1.2 million will
stop receiving benefits by the end of December. Most of the
rest of those who now receive federal emergency extended
benefits will gradually lose them.
don't extend the Bush tax cuts to the wealthy. Give
unemployment benefits to people who need them.
[Robert Reich is Chancellor's Professor of Public Policy at
the University of California at Berkeley. He has served in
three national administrations, most recently as secretary
of labor under President Bill Clinton. He has written
thirteen books, including The Work of Nations, Locked in the
Cabinet, Supercapitalism, and his most recent book,
Aftershock. His "Marketplace" commentaries can be found on
publicradio.com and iTunes.]
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