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Friday, July 6, 2012

Three Years of Sluggish Recovery Means UI Benefits are Still Critical for Millions of Unemployed Workers

Jasmine V. Tucker, National Academy of Social Insurance

Three years into a very modest recovery, unemployed workers continue to experience hardship and are facing cuts to emergency unemployment insurance benefits.

June 2009 marked both the official end of the Great Recession and the beginning of the current recovery, which has been plagued by high unemployment rates, historic long-term unemployment, and sluggish job growth. The national unemployment rate in June 2012 was 8.2%, 3.2 percentage points higher than at the start of the recession in December 2007, and the employment situation in most states is still bleak. If we consider a broader unemployment measure that includes workers who have given up searching for work and those who are underemployed (employed but not working as many hours as they would like), the unemployment rate is much higher -- 14.6%.

Additionally, more than 2 in 5 unemployed workers have been unemployed for 27 weeks or more. Before the Great Recession, the highest rate of long-term unemployment was 26% of the unemployed during a recession in the 1980s. During the Great Recession, however, it peaked at an unprecedented 46% of the unemployed and stood at about 42% in June.  

The economy continued to lose jobs long after the recession officially ended and the unemployment rate peaked at 10.0% in October 2009. Employers began adding jobs to the economy in 2010. However, the economy has regained less than 2.6 million of the nearly 7.5 million jobs lost in the Great Recession. In June 2012, the economy added just 80,000 jobs, not even enough to keep up with population growth (which requires adding about 125,000 jobs per month).

Moreover, the Congressional Budget Office (CBO) predicts that the unemployment rate will remain at or above 8% through the end of next year. Other CBO estimates show that U.S. workers cannot look forward to “full” employment (defined as an unemployment rate of 5.2% or less) for another ten years, until 2022.

Given the damage done by the Great Recession and the lack of adequate job growth during the recovery, it should come as no surprise that many polls show Americans naming “the economy” as the issue most important to them right now. And with nearly 4 unemployed workers per every job opening, it’s clear that unemployment benefits continue to be a lifeline for millions of unemployed workers and their families.

States typically offer up to 26 weeks of state-funded unemployment insurance benefits.  Prior to enactment of the Middle Class Tax Relief and Job Creation Act of 2012 in February, if unemployed workers exhausted state benefits they were eligible to receive up to 53 additional weeks of benefits through the temporary Emergency Unemployment Compensation program enacted in 2008. Then, workers living in a state qualifying for the permanent federal-state Extended Benefits program were eligible for up to 20 weeks of additional benefits. In total, eligible unemployed workers were able to receive 99 weeks of unemployment insurance benefits.

The Middle Class Tax Relief and Job Creation Act of 2012 extended the federal Emergency Unemployment Compensation program through the end of December 2012 — but the legislation came with strings attached: Congress provided for a phased-in reduction of the number of weeks of benefits provided by the Extended Benefits program and tightened the requirements for state eligibility.

If Congress fails to extend federally funded Emergency Unemployment Compensation benefits beyond December 2012, workers in some states who lose their jobs and begin collecting unemployment benefits in July 2012 will be among the first to be ineligible for additional weeks of benefits through the temporary Emergency Unemployment Compensation program after they exhaust a maximum of 26 weeks of state benefits.

In every other major recession for the past 60 years, Congress continued to extend temporary emergency unemployment insurance benefits until the national unemployment rate fell substantially from its peak. Historically, Congress has never cut back on those benefits while the rate was above 7.2%. Today the national rate still stands a full percentage point higher than that.

It’s important to keep in mind that unemployment insurance benefits are modest, replacing, on average, approximately half of a worker’s earnings prior to becoming unemployed.  Benefits tend to represent a large portion of household income, so they are spent quickly on essential items such as food and clothing. Much evidence suggests that unemployment insurance benefits provide one of the greatest returns on investment among a range of fiscal policies designed to boost GDP and create jobs. For each dollar spent on unemployment insurance, as much as $1.90 is put back into local economies. That’s a strong argument for ensuring that unemployed workers have access to benefits for as long as they need them.

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