Budget 101: Unemployment Insurance

One year after the debt ceiling crisis, Congress and the president again face a series of tough decisions regarding federal spending and deficit reduction. With so much at stake in this debate, we’ll be breaking down the details of the impending across-the-board cuts, also known as sequestration. Check back every Wednesday through October 10 for new posts, and catch up on Budget 101 by reading the lessons from the past few weeks.

The basic premise of the social safety net is that help is available when people are most in need. That’s why Medicaid enrollment expands when we’re in an economic recession — because more people meet the low-income eligibility requirements, which means that more people need assistance obtaining health care. The same thing happens with the Supplemental Nutrition Assistance Program, formerly known as food stamps. More people qualify for SNAP during recessions because more people struggle to put food on the table due to their lower incomes.

That’s also why one of the first actions Congress took when the economic crisis began was to create a temporary expansion of the unemployment insurance program that would provide additional weeks of benefits. In a normal economy, unemployment insurance — in the form of weekly checks — would be available for up to 26 weeks to people who lost their jobs through no fault of their own. But as the unemployment rate ticked up, lawmakers realized that the need was greater, which meant the social safety net had to adjust to fit the need. So in 2008, they created a program called Emergency Unemployment Compensation, which allows people to receive anywhere from 14 to 47 additional weeks of benefits depending on their state’s unemployment rate. A resident of a state with a higher unemployment rate would be eligible for more weeks of benefits.

Now, more than four years since that first extension, we are still dealing with a chronically high unemployment rate. Moreover, 40 percent of those who are unemployed have been without jobs for 27 weeks or longer, which means that they still need unemployment insurance beyond the initial 26 weeks. And at the same time, our country is facing a series of tax and budget changes that are slated to take effect at the beginning of January 2013 and are likely to impact the day-to-day lives of most Americans. One of the changes is the expiration of the Emergency Unemployment Compensation program. The question, though, is whether lawmakers will once again extend the Emergency Unemployment Compensation program or let it expire.

It’s a politically difficult decision to make because these benefits are real and tangible. In 2010 and 2011, the average weekly unemployment benefit was $300. That check could cover your utility bill, a grocery store trip, or an emergency car repair so you can make it to your next job interview.

In addition, unemployment insurance helps not only the recipient but also our economy as a whole. According to an analysis by the financial research organization Moody’s Analytics, for every dollar spent on unemployment insurance, $1.61 goes back into the U.S. economy, which makes unemployment insurance the most successful form of government stimulus. That’s because, as a Moody’s researcher told NPR, people who receive unemployment benefits tend to spend the money rather than save it, since the point of unemployment insurance is to replace a person’s lost income so she or he can still buy the necessities. Such consumer spending boosts economic growth and demand. You could correctly argue that unemployment insurance creates jobs.

Yet, as our Budget 101 series has shown thus far, these decisions are not so simple. The federal government has been footing the bill for the Emergency Unemployment Compensation program for more than four years, and with much attention focused on reducing the U.S. budget deficit, it’s a tough climate in which to argue that unemployment benefits should be extended further. In truth, these decisions are never simple, but this time, with the expiration of unemployment insurance coming at the same time as many other fiscal decisions, it is even more difficult.

Check back on October 10 for our next Budget 101 post, which will focus on upcoming automatic spending cuts, known as sequestration, and the projected impact of those cuts on women and families, education, and defense spending.