Expiration of unemployment benefits threatens US recovery, adviser warns
• Congress fails to extend programme for long-term jobless
• Economists concerned over persistently high unemployment
Dan Roberts in Washington
theguardian.com, Monday 23 December 2013 12.30 EST
The expiration of benefits for 1.3 million jobless Americans this weekend will exacerbate the worst period of chronic unemployment in post-war history, the chairman of the White House council of economic advisers warns.
The expiring programme, which provides emergency help for the long-term unemployed, was introduced after the banking crash in 2008 to cushion the impact of the recession but is due to end on Saturday. Congress had an opportunity to continue it, but failed to agree on an extension before breaking for Christmas.
Although recent improvements in the economy have boosted overall job growth, economists are concerned that long-term unemployment rates remain higher than at any time between 1948 and the recent financial crisis.
Republican critics claim that ending the programme will force recipients to find work, but new research suggests it will have the opposite effect, and will encourage them to drop out of the labour market entirely, according to Jason Furman, chairman council of economic advisers.
“You can’t get unemployment insurance if you’re not looking for a job,” Furman told the Guardian during a briefing for White House reporters. “When the economy is where it is today, it’s great if somebody stays there, keeps trying, keeps working hard trying to find that job. And the unemployment insurance extension encourages people to stay in the labor force, to continue looking for jobs.”
Similar studies by the congressional budget office and JP Morgan have suggested that ending the programme will knock between 0.2 and 0.4 percentage points off the US economy’s growth rate and that the country will lose out on 240,000 jobs due to lower demand in 2014.
Democrats are planning a fresh push this week to highlight the issue. On a media conference call, House minority leader Nancy Pelosi argued for the extension of the benefits. “Unemployment insurance is part of the safety net of our country; not just for individuals but for the economy,” said Pelosi in the call on Monday. “It is one of the biggest stimuli for the economy. Every dollar creates about $1.70 in demand.”
But Pelosi’s fellow Democrat, Senate majority leader Harry Reid, conceded more than a week ago that it was too late for Congress to act on the extension this year after it was left out of a hard-fought budget compromise between the parties.
Instead, Republicans and Democrats are expected to return to the issue early in the New Year with a vote on a three-month extension and the resumption of talks about longer-term benefits.
House speaker John Boehner, a Republican, has indicated that he is willing to consider extending the emergency unemployment insurance, which was begun during the administration of former president George W Bush, but others in his party are preparing for a showdown over an extension to the US debt limit, which may hamper attempts to reach a compromise over the jobs issue.
Until now, the issue of long-term unemployment has received relatively little attention on Capitol Hill, which has also hit poorer Americans this year with cuts to the food stamps programme. But Democrats increasingly sense it could prove a potential weapon against Republicans, who they accuse of breaking with historic precedent by refusing to extend the programme while unemployment levels remain as high as they are.
“[Unemployment has] come down for all types of workers, but it’s still unacceptably high,” Furman said during the briefing. “And the reason it’s unacceptably high is not the short-term unemployed, which is back to the same average it was before the crisis; it’s the long-term unemployed, which at 2.6% is higher than any long-term unemployment rate we've reported from 1948 through the financial crisis.”
He added: “That's a reminder of why extending unemployment insurance benefits is so important. They’ve never been allowed to lapse with an unemployment rate at this level.”