EPI News

Why extending unemployment insurance is the fiscally responsible thing to do

Late last week the House of Representatives voted to extend unemployment benefits to millions of long-term unemployed workers who have been jobless longer than 26 weeks. But with the Senate failing to vote on the measure before going on recess, close to 20,000 workers will lose their benefits this week. Without an extension, this number will grow rapidly over time. More than 8 million unemployed workers stand to lose their benefits by year end. Much of EPI’s recent work has focused on the issue of emergency unemployment insurance and why it is so crucial.

Pays for food, other essentials

On May 26, EPI hosted the discussion Long-Term Unemployment: Causes, Consequences, and Solutions, where four leading labor market economists discussed the unprecedented rates of long-term unemployment and outlined why extending unemployment benefits would not only support individual workers who have been unable to find jobs, but would also stimulate the economy and help create more jobs.

[watch video]

Jesse Rothstein, chief economist at the U.S. Department of Labor, along with Raj Chetty, professor of economics at Harvard University, and EPI’s Heidi Shierholz, stressed that money sent out in the form of unemployment insurance was quickly returned to the community, effectively supporting local economies. Chetty said that the median unemployed person had almost no cushion–only about $250 in liquid savings–at the time of job loss, resulting in a sharp drop in spending on essentials including food. “If you give money to someone who is unemployed, they are going to spend it the next day,” said Rothstein.

Shierholz also provided data to illustrate why it is taking workers so long to find jobs. About 7.8 million jobs have been lost since the recession began in December 2007, and over that same time, the country should have been adding about 100,000 jobs per month, or about 2.9 million in total, just to keep up with population growth. As a result, the country is now short 10.7 million jobs and has more than five unemployed workers for every job opening. Even if the labor market were to sustain the strong pace of job growth seen in April, when 290,000 jobs were created, it would still take five years to return to the pre-recession rate of unemployment.

Economists on the panel noted that in this sort of a weak labor market, arguments that unemployment insurance discourages people from looking for work do not apply. “If there really are no jobs, that cost (of providing unemployment insurance) goes away,” said Rothstein.

Keeps people in the work force and off disability, Medicare

Also on the panel, Till Marco Von Wachter, associate professor of economics at Columbia University, addressed some of the risks associated with not providing unemployment insurance to jobless workers. He said that providing unemployment insurance helps keep jobless workers in the labor market, looking for work, since, in order to qualify for unemployment insurance, a person must be actively seeking work. “A high fraction of the unemployed who lose their benefits will end up out of the labor force,” he said, noting that many of these discouraged workers apply for permanent Social Security disability. These people may no longer be collecting unemployment insurance, but they will likely be receiving disability–and possibly Medicare benefits as well–for a lifetime, with little or no prospect of working or paying taxes again. Considering those outcomes, providing unemployment insurance is the fiscally responsible thing to do, von Wachter said.

Presentations from all the speakers on the long-term unemployment panel are available on EPI’s Web site. Visit The Case for Extending Unemployment Benefits on EPI.org.

Keeping teachers, local government workers in their jobs

Despite last month’s strong jobs report showing 290,000 new jobs created, local governments continue to face massive budget gaps, which could likely result in more job losses. The new Issue Brief, Local Government Job Losses Hurt Entire Economy, by Policy Analyst Ethan Pollack, shows how large numbers of local government job cuts will worsen the national jobs crisis. Pollack argues that preventing these job losses needs to be a top priority for the Obama administration and Congress. Another new policy memo, Keeping Teachers on the Job Costs Less Than Advertised, by economist Josh Bivens, stresses that programs aimed at creating jobs are partially self-financed. As people go back to work, tax collections rise, and the need for safety net spending is reduced. When all these factors are considered, the cost of creating jobs is considerably less than the upfront investment. Bivens argues that this large “bang for the buck” is one more reason to make sure that we direct resources as efficiently as possible in the name of job creation.

Diane Ravitch responds

A May 23 cover story in The New York Times Magazine examined the Obama administration’s Race to the Top state education grant program, an incentive program aimed at improving school quality, which EPI research has shown to be arbitrary and unfair. Education historian Diane Ravitch, author of the new book, The Death and Life of the Great American School System, and an outspoken critic of Race to the Top, spoke with EPI about the Times article and the problems with using test scores to measure teacher performance as well as the ways that the growth in charter schools was undermining public education.

In the interview, Ravitch stresses that charter schools perform no better on the whole than public schools, despite having the unfair advantage of being able to “quietly remove” poorly performing students. She also makes the point that all of the focus on measuring and improving teacher performance overlooks the larger problems, such as poverty and homelessness, which contribute to poor educational outcomes.

“Part of what is going on is to try to blame low performance on teachers instead of recognizing that poverty is the single greatest determinant of low scores. Not being a native English speaker and being homeless are also major factors,” said Ravitch. She also challenged the popular argument that lifelong tenure had made it almost impossible to remove poor teachers. “Lifetime tenure does not exist. Tenure means the right to due process. But firing people because they cost more is a way to destroy a profession,” she said.

EPI in the news

A front page New York Times story about the ways the recession has devastated black families in Memphis, Tennessee, cited data from EPI’s forthcoming State of Working America on the massive racial disparities in family wealth. As of December 2009, median white family wealth was $94,600 and median black family wealth was just a small fraction of that, or $2,100. Algernon Austin, director of EPI’s Program on Race, Ethnicity, and the Economy, participated in a discussion on National Public Radio’s Talk of the Nation about the challenging job market for the Class of 2010. Austin noted that while the job market was difficult across the board, the 2009 unemployment rate for black college graduates was twice the rate of that for white college graduates. For Asian and Hispanic college graduates, the unemployment rate was 1.7 times higher than for white college graduates. Newsweek cites EPI’s research projecting unemployment would remain near 10% through at least November. The Orange County Register quoted a Policy Memo by EPI Vice President Ross Eisenbrey outlining how extending unemployment benefits will help stimulate the economy.