Ending Emergency Unemployment Compensation -- a Real Fiscal Cliff for Millions

November 16, 2012
Guest Post

By Christine L. Owens, Executive Director, National Employment Law Project

With the election behind us, the looming fiscal cliff has now moved front and center in our national debate. The stakes are enormous, though as many note, the “cliff” is really a “slope,” with the effects of going over it more gradual than immediate and remediable by future action.  But for one group of Americans -- the long-term unemployed -- Congress’s failure to meet an end-of-year deadline means a catastrophic plunge. Here’s why.

The Emergency Unemployment Compensation (EUC) program enacted in mid-2008 and since renewed ten times, provides between 14 and 47 weeks of federal unemployment benefits, depending on states’ unemployment rates, for jobless workers who reach the end of their state benefits (typically, 26 weeks) without finding work. Since Congress last reauthorized and shrank the EUC program in February 2012, the total number of weeks of federally-funded benefits for long-term unemployed workers has declined significantly, by an average of 31 percent across the states.  

The EUC program is now set to expire at the end of the year -- a demise that is premature. Though the unemployment rate is falling, at 7.9 percent it is still 40 percent higher than when EUC was first implemented. More significant, long-term unemployment -- joblessness longer than six months -- has grown substantially in recent years: At five million individuals, long-term unemployment accounts for 40.6 of overall unemployment, a share more than double that in mid-2008 (18 percent) and one that has declined only marginally from the 42.6 percent rate last February, when the program was renewed. With more than three unemployed workers for every job opening, the average duration of unemployment is 40 weeks. These jarringly long spells and sustained high rates of long-term unemployment are record-setting, underscoring the continued need for the EUC program.

Congress has allowed EUC benefits to lapse temporarily on several occasions in the past, but the program’s rules insulated most participants from immediate harm, allowing them to continue receiving assistance until they reached the end of the “tier” in which they were participating. However, when Congress renewed EUC in February, it imposed a hard cut-off:  If the program is not renewed by year’s end, 2.1 million unemployed participants will immediately stop receiving benefits, and by the end of the first quarter in 2013, roughly one million more unemployed workers will move into the ranks of the long-term unemployed, without the crucial income support EUC provides. 

Cutting off EUC would deal a devastating blow to the long-term unemployed and potentially to the economy overall.  Unemployment benefits play a crucial role in helping the jobless return to work, both because the program requires job search as a condition of aid and because the income enables individuals to incur the costs -- transportation, applications, and occasionally, job training -- needed to seek work. Researchers at the John J. Heldrich Center at Rutgers have found that unemployed workers receiving benefits take more steps to look for work than those without benefits. 

Unemployment benefits, though modest, also provide a basic floor of income support that enables many jobless workers and their families to stay in their homes and meet their basic needs.  The Congressional Research Service found that in 2011, 26 million workers and their families benefited from unemployment assistance, including 2.3 million (more than a quarter of them children) lifted out of poverty because of the aid. According to CRS, unemployment assistance produced a “markedly higher impact on poverty in the most recent recession than in the previous two” recessions. 

These benefits are also crucial to sustaining our fragile recovery. As Moody Analytics Chief Economist Mark Zandi put it, “There was arguably no more effective form of government support during the recession than the emergency UI benefits provided to workers,” which “financially stressed unemployed workers spend … quickly.”  Every dollar paid out for unemployment benefits generates an additional $1.61 to $2.00 in economic activity. This economic boost is especially crucial as we approach the holiday season and long-term unemployed workers are facing the end of the EUC program: According to the National Retail Federation, 20 percent of all 2011 retail industry sales were during the holidays. Draining consumption from the economy at the time spending should be most robust is a recipe for disaster.

Renewing and preserving the EUC program for at least another year is critical for the economy overall -- and even more importantly, for the millions of men and women who want to work, need to work, and are looking for work but still cannot find jobs. They have already paid the greatest price for the reckless, profligate policies that propelled the nation into its deepest recession since the 1930’s. The least we can do for them is to preserve a program of modest income support, until the country’s job growth engine has enough steam to provide work for all of America’s workers. 

Sources for all data cited in this post can be found here