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White House Threat to Veto Extension of Unemployment Insurance Lacks Economic Rationale

May 21 2008

WHITE HOUSE THREAT TO VETO EXTENSION OF UNEMPLOYMENT INSURANCE LACKS ECONOMIC RATIONALE

On Eve of Senate Vote to Move Iraq Supplemental, Joint Economic Committee Shows UI Extension Is Prudent and Will Stimulate Economy

WASHINGTON, DC:  Tomorrow the Senate is poised to vote on cloture on the emergency domestic spending amendment to the Iraq supplemental, which includes a 13 week extension in jobless benefits for Americans out of work.  Numerous economists and labor experts have said that extending unemployment insurance (UI) during economic downturns or repeated months of weak jobs reports is prudent and is one of the most effective economic stimulants. 

However, yesterday the President threatened to veto the Iraq supplemental and made the following statement about the 13-week unemployment insurance extension:

“The unemployment rate is 5.0 percent -- a low rate by historical and economic standards. The current unemployment insurance program already provides significant assistance; including six months of benefits and extended benefits beyond six months if a state has a high and rising unemployment rate. Increasing and extending unemployment insurance benefits when unemployment is this low would be unprecedented and counterproductive because it would reduce the incentive for workers to find new employment.” –Statement of Administration Position (OMB)

The Joint Economic Committee, chaired by Sen. Charles E. Schumer, released a response to the Administration’s position on unemployment insurance.  Extending unemployment insurance is among the top priorities of the Democratic Congress and has been championed by Sen. Edward M. Kennedy, who chairs the Health, Education, Labor, and Pensions Committee in the Senate. 

Throughout 2008, the Bureau of Labor Statistics has noted the continued weakening of the labor market. Over the past six months, the private sector has shed 282,000 jobs and for the first time since 2003, there was a fourth straight month of falling employment. Unemployment typically only rises like this when we are in a recession. Job losses are no longer contained in sectors associated with the housing bust or manufacturing slowdown, but are now spreading throughout the economy. The current labor market slowdown comes on the heels of the weakest jobs recovery in over seventy years.

Evidence is mounting that labor market conditions are already as bad as or worse than when Unemployment Insurance (UI) benefits were extended in previous recessions:

  • - Long-term unemployment is at recession levels and already higher than when Congress extended UI benefits in the 2001 and 1990-91 recessions. Currently, there are 1.4 million unemployed workers who have been out of work and searching for a new job for at least six months.
  • - The share of the U.S. population with a job never fully recovered from the 2001 recession and is identical to its level the last time UI benefits were extended.
  • - The average duration of a jobless spell today is longer than at any time Congress has first extended unemployment benefits in the past 30 years.
  • - The share and number of UI beneficiaries exhausting their benefits is already higher than at the beginning of the 2001 and 1990-91 recessions.[1] More than one-in-three unemployed workers (36.4 percent) exhausted their UI benefits this past quarter.
  • - Over 1.4 million workers will exhaust their UI benefits between January and June 2008 and 11 states and the District of Columbia have exhaustion rates higher than 40 percent (FL, NJ, CA, NE, AZ, NM, NC, CO, LA, RI and IN).

Many indications exist that the unemployed are having difficultly finding a job. Currently, there are 4.0 million unemployed workers who lost their jobs involuntarily and the unemployment rate would be close to twice as large if we included everyone who wanted, but did not have, a full-time job.

Families are ending this recovery having made very little economic progress. The 2000s recovery will very likely be the first in many decades where at the end of the recovery, real family income is $1,000 lower than it was at the last economic peak. Families have very little savings and, on top of this, the collapse of the housing market and the credit crunch mean that families are increasingly unable to tap into home equity or sell their home to move to find better employment opportunities. Recent estimates are that, depending on the severity of the recession, families may lose an additional $2,000 to nearly $4,000 in income per year over the current recession.

Economists agree that, dollar for dollar, UI benefits are one of the most effective means of economic stimulus. Extending UI benefits now will not only help working families maintain income stability in the face of a challenging labor market, but may also help many to avoid having to foreclose on their homes in a market already glutted with unsold houses. Extending UI benefits is one the most effective forms of economic stimulus and given the potentially protracted nature of the current economic downturn, there is no reason to wait to extend benefits.

The Joint Economic Committee, established under the Employment Act of 1946, was created by Congress to review economic conditions and to analyze the effectiveness of economic policy.

www.jec.senate.gov
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