Sequestration Adds to Woes of Long-Term Unemployed

Sequestration cuts unemployment benefits and weakens the economy, making it more difficult to find jobs.

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Chad Stone is chief economist at the Center on Budget and Policy Priorities.

Sequestration—the automatic spending cuts that kicked in this month—is a double-whammy for the long-term unemployed. It takes money out of their pockets directly by cutting their federal emergency unemployment insurance benefits, but it also makes it harder for them to find a job by weakening the economy.

Sequestration is a bad idea whose time never should have come. And notwithstanding Washington Post eminence grise Bob Woodward's mangling of the story, there's plenty of blame to go around for why it has. But so it has, and the victims include people who are still looking for a job after running out of their regular state unemployment benefits and are now receiving federal unemployment benefits.  

In the typical state, people who lose their job through no fault of their own may receive up to 26 weeks of unemployment compensation while they look for work. Long-term unemployment is therefore generally considered to be unemployment lasting 27 weeks or longer. The federal government has created a temporary federal emergency unemployment insurance program to provide additional weeks of unemployment compensation in every major recession since the 1950s. Sequestration affects the Emergency Unemployment Compensation program created in mid-2008; it does not affect regular state unemployment insurance benefits.

[See a collection of political cartoons on sequestration and the fiscal cliff.]

About 2 million people now receive an average benefit of $300 a week through unemployment. Over the remainder of the year, some of them will find work or run out of benefits and others now receiving regular state unemployment insurance benefits will transition to federal benefits. If the sequester runs for the whole year, an estimated 3.8 million workers would be affected.

The Obama administration estimates that sequestration will require an 11 percent cut in federal unemployment insurance benefits. That's real money—about $140 a month on average—for cash-strapped families. They will likely cut back their spending accordingly, taking purchasing power out of their local economies. The resulting loss in sales will hardly encourage businesses to expand, and the recovery will continue to languish.

[See a collection of political cartoons on the economy.]

The Congressional Budget Office estimates that if the total spending cuts required by sequestration continue through the end of this year, economic growth will fall 0.6 percentage points (from 2.0 percent to 1.4 percent), costing about 750,000 jobs. That will only aggravate the special problems facing the long-term unemployed by making it even harder for them to find a job. And, as the National Employment Law Project points out, the sequestration is not limited to unemployment benefit cuts; it also requires "a significant reduction in funds for the various programs that assist the unemployed in finding jobs and acquiring the skills they need to find new jobs."

In several states, sequestration is just one more problem for the long-term unemployed. While 26 weeks was long the norm for the maximum number of weeks of unemployment insurance states provided, seven states now provide fewer: Michigan (20 weeks), Missouri (20), South Carolina (20), Arkansas (25), Illinois (25), Florida (12 to 23 weeks depending on the unemployment rate), and Georgia (12 to 20 weeks depending on the unemployment rate); two states offer more than 26 weeks: Montana (28) and Massachusetts (30, only when federal emergency benefits are not in effect). The maximum duration of federal emergency benefits is proportional to the maximum duration of state benefits, so the state cuts have had a cascading effect on the total number of weeks available.

[Read the U.S. News Debate: Should Congress Extend Federal Unemployment Benefits?]

North Carolina will top them all in July when it cuts both the maximum number of weeks available and the maximum benefit amount. As I recently discussed in this blog, the benefit cut means the long-term unemployed in North Carolina will lose access to all federal unemployment insurance.

Policymakers should put the nation's finances on a long-term stable trajectory, but that does not require that they jeopardize the economic recovery. And they certainly shouldn't do it in a way that makes things worse for the long-term unemployed.

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