Unemployed Will Have Fewer Resources Unless Congress Acts

Washington DC

Source: http://www.flickr.com/photos/patrick_nouhailler

In Congress, January 1, 2014 may not herald the fresh start to a new year as much as it will the expiration deadline of numerous Federal programs unless legislation is swiftly passed. One such program currently slated to end is the Emergency Unemployment Compensation (or, EUC) program.

EUC was implemented in 2008, and offers a temporary extension of unemployment benefits from the Federal government for individuals who are unemployed and have already exhausted regular and state benefits for which they are eligible. The program ceases on January 1, but is not a program with a phasing out period, so the actual last week of paid benefits for most people will be December 28.

The Council of Economic Advisers and the Department of Labor issued a report on the effects of EUC expiring. The Administration’s position is that, although progress has been made, and the economic condition of the country has improved since the Great Recession, taking away EUC benefits would hinder further growth at a crucial time.

EUC benefits are provided with Treasury fund money. Federal spending on unemployment insurance exploded between 2004 and 2010. For the period of 2004 through 2007, unemployment insurance programs averaged $33 billion annually according to the Congressional Budget Office (or, CBO). Between 2007 and 2009, the yearly average was $119 billion, and in 2010, the CBO says $155 billion was spent on unemployment insurance.

The trend is now moving in the opposite direction. In 2012, spending for the programs was $93 billion. EUC was originally set to stop in 2012, but Congress authorized a one-year extension, which cost approximately $30 billion. The CBO says this will positively influence inflation-adjusted GDP in the fourth-quarter of 2013, making it 0.2 percent higher, causing full-time employment to increase by 0.3 million for the same period than it would be without the additional spending.

Similarly, the CBO has projected numbers for extending the program into 2014. The office released the estimates in response to a request by Representative Chris Van Hollen (D-Md.). The midpoint of CBO estimates for how EUC will impact the economy are 0.2 percent growth in inflation-adjusted GDP, and a 0.2 million increase in full-time employment for fourth-quarter 2014.

The CBO letter also states that the positives of extending EUC would be slightly offset by “an increase in the duration of unemployment for some people. Specifically, in response to the extension of benefits, some unemployed workers who would be eligible for those benefits would reduce the intensity of their job search and remain unemployed longer — which would tend to decrease output and employment.”

In his weekly address, Speaker of the House John Boehner (R-Ohio) said that, “If the president has a plan for extending unemployment benefits I’d truly entertain taking a look at it. But I’d argue that the president’s real focus ought to be creating a better environment for our economy and creating more jobs for the American people. That’s where the focus is — not more government programs.”

Minority Leader Nancy Pelosi (D-Calif.) responded during the minority’s weekly briefing. “I was very pleased to see that the Spekaer left the door open on unemployment insurance,” Pelosi said. She added that she did not know what the White House’s plan was on sending over a plan, but the Administration had asked the Democrats to act.

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