New Report: The Economic Benefits of Extending Unemployment Insurance

The United States economy continues to recover from the worst economic crisis since the Great Depression, and while substantial progress has been made, more work remains to boost economic growth and speed job creation. Despite ten consecutive quarters of GDP growth and 7.8 million private sector jobs added since early 2010, the unemployment rate is unacceptably high at 7.3 percent, and far too many families are still struggling to regain the foothold they had prior to the crisis.

The Emergency Unemployment Compensation (EUC) program authorized by Congress in 2008 has provided crucial support to the economy and to millions of Americans who lost jobs through no fault of their own. Under current law, EUC will end on December 28, 2013^[1].

This report argues that allowing EUC to expire would be harmful to millions of workers and their families, counterproductive to the economic recovery, and unprecedented in the context of previous extensions to earlier unemployment insurance programs.

Download the full report here or read a summary below, including state-by-state effects of allowing EUC benefits to expire.

Since their inception in 2008, extended unemployment insurance (UI) benefits have provided critical support to millions of workers and their families:

• Nearly 24 million workers have received extended UI benefits
• Recipients are a diverse group: roughly half have completed at least some college, including 4.8 million with bachelor’s degrees or higher
• Including workers’ families, nearly 69 million people have been supported by extended UI benefits, including almost 17 million children
• In 2012 alone, UI benefits lifted an estimated 2.5 million people out of poverty

Millions of workers stand to lose access to UI benefits if no action is taken:

• Approximately 1.3 million workers currently receiving extended UI benefits are set to lose them at the end of the year 
• 3.6 million additional people will lose access to UI benefits beyond 26 weeks by the end of 2014 

Allowing UI to expire would be damaging to the macro-economy and the labor force:

• Failing to extend UI benefits would put a dent in job-seekers’ incomes, reducing demand and costing 240,000 jobs in 2014.
• Estimates from the Congressional Budget Office and JP Morgan suggest that without an extension of EUC GDP will be .2 to .4 percentage points lower.
• In 2011, CBO found that aid to the unemployed is among the policies with “the largest effects on output and employment per dollar of budgetary cost”
• In over a dozen studies, economists have found that any disincentive to find new work that could result from extended UI benefits is, at most, small
• Expiration of extended UI benefits may also lead some long-term unemployed to stop looking for work and leave the labor force, reducing the number who could eventually find jobs as the economy heals

Allowing EUC to expire would be unprecedented in the context of previous extensions to earlier unemployment insurance programs:

• The unemployment rate (7.3% in October) is currently higher than it was at the expiration of any previous extended UI benefits program
• The long-term unemployment rate (2.6% in October) is at least twice as high as it was at the expiration of every previous extended UI benefits program
• In this cycle, EUC was first signed into law in June 2008 by President Bush when the unemployment rate was 5.6 percent and the average duration of unemployment was 17.1 weeks. Today, as of October 2013, the unemployment rate is 7.3 percent and the average duration of unemployment is 36.1 weeks.
• Consistent with previous programs, the EUC program has been gradually phasing down – the median number of weeks one can receive benefits across states is down from a peak of 53 weeks in 2010 to 28 weeks currently and phasing down to 14 weeks under the proposed extension

The effects of allowing EUC benefits to expire would be felt nationwide:

Job-seekers who will lose access to EUC benefits can be found in nearly every state.

Failure to extend EUC benefits would cost jobs in every state in 2014.

Jason Furman is Chairman of the Council of Economic Advisers. Betsey Stevenson is a Member of the Council of Economic Advisers

^[1] In all states except New York, the last payable week of EUC benefits will be the week ending December 28. In New York, it will be the week ending December 29.