Amid Healing Labor Market, Long-Term Unemployment Still Dire

More than one-third of jobless Americans have been out of work for more than 6 months.

Job seekers Hernaldo Garay, right, and Kenneth Ayala fill out forms during the 'Put Your Talent to Work' job and resource expo Dec. 17, 2008, in Concord, California.
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At long last, Congress finally seems like it agrees on a budget, but at least one group isn't cheering: Americans who have long been out of work. That's because the latest budget does not extend long-term unemployment benefits.

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While the labor market has healed considerably since the recession, the situation remains dire for many long-term unemployed. The unemployment rate has fallen to 7.0 percent. However, the share of the unemployed who have been out of work remains in unprecedented territory. Those who have been out of work for 27 weeks or more account for roughly 37 percent of the unemployed,, a higher rate than ever seen prior to the recession. That rate is down from a post-recession peak of nearly 46 percent, but is well above the nearly 26 percent seen in the early 1980s, after a recession.

At stake is a $26 billion program that provides around $300 per week to the long-term unemployed. According to White House estimates, it could leave an additional 1.3 million people without jobless benefits after the end of the year, and an additional 3.6 million would lose their benefits by the end of 2014. The federal extension currently covers workers for up to 73 weeks, as opposed to the 26 weeks of benefits that states normally provide.

The debate has opened up a discussion among politicians and pundits about exactly how much benefit the federally extended jobless program provides.

"I do support unemployment benefits for the 26 weeks that they're paid for. If you extend it beyond that, you do a disservice to these workers," Sen. Rand Paul told Fox News Sunday on Dec. 8. "When you allow people to be on unemployment insurance for 99 weeks, you're causing them to become part of this perpetual unemployed group in our economy."

For his part, House Speaker John Boehner, who had earlier expressed opposition to the extension, has said that he would accept an extension but only if Democrats found the money for it. Meanwhile, the White House and many congressional Democrats have said the program must be extended, to protect Americans who would otherwise be destitute, and to boost the economy.

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While politicians have drawn their firm lines on the subject, consensus on the effects of long-term unemployment is more difficult to find among economists, but there are those who say that even if unemployment benefits disincentivize work, that's not necessarily a bad thing. Jobless benefits can give a person a modest cushion to help them find a job that actually uses their skills.

"I don't see anything wrong with holding out to find something that [workers] perceive is a better match with their skills," says Sophia Koropeckyj, managing director at Moody's Analytics. If the economy is to grow to its full potential, she argues, workers should work to their full potential; that means a laid-off middle manager shouldn't necessarily take the first low-paying dishwashing job that comes her way.

"It doesn't really make sense for people like that to take jobs that don't use their skills," she says, adding that she believes most people aren't simply sitting back and enjoying their jobless benefits. "Most people don't want to be on the dole. Most people want to be working."

To stay on unemployment insurance, of course, people must keep actively looking for a job. But there is no guarantee that people on jobless insurance are all looking terribly hard.

"One thing we know is the extended benefit program does keep people going through the motions of looking for a job longer than they would if unemployment benefits don't last as long," says Gary Burtless, senior fellow at the Brookings Institution.

But even if jobless benefits may encourage half-hearted job searches, he adds that they also do support people in a tough job market – there are roughly three job searcher per opening – and they also support the economy. As the CBO estimated earlier this month, extended benefits will boost employment by roughly 200,000 in 2014 and also boost GDP by 0.2 percent.