Bad News for Jobless Workers, as Federal Unemployment Assistance Is Phased Out

Friday, September 7, 2012 at 12:13 AM by

One of the effects of the nation’s ongoing economic sluggishness has been a persistently high unemployment rate, including an especially stubborn increase in long-term unemployment. There are now more than 5.6 million Americans who have been unemployed at least six months, and as the new State of Working Wisconsin report indicates, the number of Wisconsinites unemployed for six months or more was three times higher in 2011 than in 2000. (See our recent blog post about that report.)

Nevertheless, fiscal conservatives in Congress seem intent upon rapidly phasing out federal jobless benefits for the unemployed.  As my co-worker Tamarine Cornelius wrote in a Capital Times op-ed column, this week brought bad news for many jobless Wisconsinites who now get unemployment insurance benefits. The latest step in the phase-out of federal assistance for the long-term unemployed took effect on September 2. The phase-out is illustrated in the chart below.

For a thorough description of who is affected and how, see the new Department of Workforce Development’s detailed explanation.

Although this week brought bad news, the even more worrisome news is that federal unemployment benefits will disappear altogether at the end of 2012 if Congress doesn’t take action in the next few months to save the federal aid for jobless workers.  That would eliminate assistance for those who have been unemployed more than six months and have exhausted their state-funded unemployment insurance benefits.

An irony is that the number of weeks of unemployment benefits available to jobless workers in Wisconsin is decreasing even though our state’s unemployment rate in Wisconsin has climbed in recent months. As Tamarine wrote in the op-ed column:

“The number of weeks of benefits to jobless workers is now much lower than the last time our state’s unemployment rate was this high – in October 2011. At that time jobless workers had access to up to 20 months of total state and federal unemployment benefits – about seven more months of assistance than will be available to jobless Wisconsin workers after today’s reduction. And after the end of the year, jobless workers might be limited to the basic six months of state-funded unemployment insurance benefits.”

Allowing the federal assistance to end abruptly in January wouldn’t only hurt the jobless workers struggling to feed their families. It would be a blow to the nation’s slow recovery because it would end one of the most effective types of economic assistance during deep downturns.  According to economist Mark Zandi, every dollar spent on extended unemployment benefits produces $1.61 in economic activity.

Congress needs to bring down the deficit, and one sensible way to help do that is to phase down unemployment assistance as the economy improves.  However, completely ending the program in January in order to offset part of the cost of tax cuts for the wealthy is the wrong prescription for economic recovery, and could make the federal deficit worse rather than better.

Jon Peacock

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