Killing unemployment comp extensions – and hope

Republicans in the Senate (joined by Nebraska Democrat Ben Nelson and Connecticut Independent Joe Lieberman) killed the unemployment compensation extension and more last week, claiming that the country can’t afford to add to the deficit. The bill that was killed, as described by The Hill, included tax breaks and aid to states, as well as the unemployment benefit extension and a delay in Medicare payment cuts to doctors. Cutting the deficit, however, is bad news for the stumbling recovery.

Mark Zandi, chief economist and cofounder of Moody’s Economy.com, testified before Congress last fall. He explained:

The part of the stimulus providing the biggest bang for the buck-the most economic activity per federal dollar spent-is the extension of unemployment insurance benefits (see Table 3). Workers who lose their jobs before the end of 2009 can temporarily receive more UI, food stamps, and help with health insurance payments. Without this extra help, laid-off workers and their families would be slashing their own spending, leading to the loss of even more jobs.

Defeat of the package of tax and benefit extensions means more than a million workers losing unemployment compensation  benefits (UCB) this summer, with a corresponding impact on state and local economies. As Paul Krugman wrote:

What I currently find most ominous is the spread of a destructive idea: the view that now, less than a year into a weak recovery from the worst slump since World War II, is the time for policy makers to stop helping the jobless and start inflicting pain.

The job market is still tough, with about five jobseekers for every job. Now Senate Republicans have blocked an extension of unemployment benefits, and millions of workers will find themselves without the thin cushion that the benefits have provided.

In Minnesota, unemployment compensation benefits (UCB) max out at $585/week. An earlier-than-expected end to UCB will leave tens of thousands of Minnesotans, and hundreds of thousands across the nation, with no way to pay the mortgage or rent.

How many weeks are there? Regular unemployment compensation is paid for up to 26 weeks, depending on how long the individual worker has been employed. As of January, more than six million workers had been unemployed for more than 26 weeks. The federal extended benefits program was set up in 1970, and provides 13 to 20 weeks of extended unemployment benefits to states experiencing high levels of unemployment. This program has a complex “trigger” mechanism and state/federal cost sharing arrangements, but the American Recovery and Reinvestment Act (ARRA) of 2009 made temporary changes to allow more states to qualify and to provide more federal funding. Federal emergency unemployment compensation has extended the benefit period for different tiers of workers: Tier 1 – 20 weeks Tier 2 – 14 weeks Tier 3 – 13 additional weeks of benefits in states where the total unemployment rate 6% or higher. Tier 4 – 6 additional weeks of benefits in states where the total unemployment rate is 8.5% or higher. The 99ers – people who have received unemployment compensation for 99 weeks – have exhausted all extended and emergency benefits. Some in Congress have proposed a Tier 5, which would extend benefits past 99 weeks.

A recent Pioneer Press article told the story of an accountant whose benefits will run out in September. She has been looking for work, and just got another turndown.

The tears started rolling, she said. “I couldn’t turn it off.”

Single and with no other source of income, she fears being evicted from her St. Paul apartment when weekly $430 unemployment checks end in September – 13 weeks earlier than expected. “I have no place to go,” she said.

The accountant is among 170,000 Minnesotans still receiving UCB. Some are not so lucky. The same article tells of a 62-year-old Minneapolis resident who ran out of benefits in May, and has been forced into early retirement and social security, as well as relying on a food assistance program.

The National Employment Law Project tells the story of another Minneapolis resident:

[I] find myself about to be jobless for the first time since graduating from college and going into the Peace Corps.

“I have a mortgage still due on the home that I “own” and have lived in for 23 years in Minneapolis. I assumed I would be “safe,” meaning I could make my house payments and health insurance payments, when I lost my job because I thought I could rely on unemployment insurance (which I’ve never had to access before) and the critical link of COBRA subsidy offered through the stimulus package this past year.

“I have the added concern of being a cancer survivor having been diagnosed ten years ago. Because the insurance companies, by and large, can continue to discriminate against people like me with a pre-existing condition, I will be in a very serious, perhaps life threatening position when I am left with no insurance in August. Reauthorization of the COBRA subsidy by voting YES for HR 4213 could very well save my life.

The pain will go beyond unemployed workers. A June 24 Politics in Minnesota article warned that Minnesota cities are going broke. One factor is the cuts in Local Government Assistance (LGA) from the State of Minnesota, which is also going broke.  The most recent economic forecast from the state Office of Management and Budget predicts a $5.8 billion dollar shortfall for the 2012-2013 biennium – after expenditures have already been slashed and all kinds of cost-shifting, payment-delaying legerdemain played out to barely balance the books in the current 2010-2011 biennium.

As workers lose the only income they have, there will be a corresponding decrease in spending and increases in mortgage and rent defaults, foreclosures, evictions and homelessness. Lower spending means lower state sales and income tax revenues. As Krugman points out, slashing government spending won’t even result in lowering the deficit:

Both textbook economics and experience say that slashing spending when you’re still suffering from high unemployment is a really bad idea – not only does it deepen the slump, but it does little to improve the budget outlook, because much of what governments save by spending less they lose as a weaker economy depresses tax receipts.

In short – cutting unemployment compensation eligibility will deepen the pain and won’t even succeed in reducing the deficit.