A Glaring Omission from the Budget Deal

Lawmakers are making a huge mistake by not extending emergency unemployment benefits.

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This week's budget agreement between Senate Budget Committee Chair Patty Murray, D-Wash., and House Budget Committee Chair Paul Ryan, R-Wis., was a small one, but it met important criteria for a budget deal. But, in a glaring omission, it doesn't renew federal emergency unemployment insurance benefits that will expire just after Christmas.

They shouldn't, but apparently lawmakers will go home for Christmas without fixing the problem. Certainly they should fix it retroactively when they return in January.

As I discussed on this blog a month ago, the Federal Emergency Unemployment Compensation program, which since 2008 has provided financial support to nearly 24 million workers who've lost their jobs in the deepest and most protracted jobs slumps since the Great Depression, will expire at the end of the year. Policymakers have enacted an emergency unemployment insurance program in all seven previous major recessions back to the late 1950s, and none of the previous programs was allowed to expire until labor market conditions had improved sufficiently. We're not there yet.

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

While unemployment has fallen to 7.0 percent, this measure alone provides too optimistic a picture of the labor market's overall health. The recession drove many people out of the labor force, and scarce job opportunities in the ongoing jobs slump have kept many potential jobseekers on the sidelines.

Their absence from the ranks of the officially unemployed keeps the unemployment rate lower than it otherwise would be. But it also means that the share of the population with a job, which plunged in the recession to levels last seen in the 1980s, has changed little over the last four years. In a robust jobs recovery, the unemployment rate would fall quickly, but labor force participation and the share of the population with a job would rise.

In addition, long-term unemployment remains a significant concern. Nearly two-fifths (37.3 percent) of the 10.9 million people who are unemployed — 4.1 million people — have been looking for work for 27 weeks or longer (regular unemployment insurance benefits typically run out after 26 weeks). These long-term unemployed represent 2.6 percent of the labor force. At 2.6 percent, the long-term unemployment rate is at least twice as high as when any previous emergency federal unemployment insurance program expired (see chart). 

[See a collection of political cartoons on the budget and deficit.]

Failure to extend emergency benefits adds to the financial hardship of the long-term unemployed and their families, but it's also a drag on the economy. The Congressional Budget Office estimates that an extension would boost the economy by up to 0.3 percent by the end of 2014 and add up to 300,000 jobs. Not extending the benefits would remove that potential boost from the economy.

To put the emergency unemployment insurance program's economic impact of in perspective, it's about the same size as the impact of the Murray-Ryan budget deal in 2014. Economist Joel Prakken of Macroeconomic Advisers says, for example, that the deal would boost economic growth by "maybe 1/4 percentage point" compared to the sequestration cuts scheduled under current law. 

As I mentioned at the top, the budget deal meets some important criteria, including one I've mentioned often on this blog: it raises deficits in the near term to boost the economic recovery, but reduces them by an even larger amount later, when the economy is expected to be stronger. But here's the rub: The economic drag caused by lawmakers' failure to include an extension of federal emergency jobless benefits in the deal would likely negate that stimulus.

Without an extension, 4.9 million people will lose out on benefits in the next 12 months, according to Labor Department estimates. The economy will also lose out on a needed boost.

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

  • Read Ryan Alexander: Thanks Ryan and Murray, Now Go Back to Work
  • Read Stan Veuger: The Budget Deal Won't Save Obama's Potemkin Presidency
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