TOPICS > Economy

As Recovery Uncertainty Remains, Extending Jobless Benefits Debated

July 2, 2010 at 12:00 AM EDT

JEFFREY BROWN: And now we go to that debate over extending unemployment benefits.

Joining me here for that, Christine Owens, executive director of the National Employment Law Project, an advocacy group representing the interests of lower-wage workers, and William Beach, director of the Center for Data Analysis at the Heritage Foundation, a conservative public policy research group.

Welcome to both of you.

CHRISTINE OWENS, Executive Director, National Employment Law Project: Thank you.

WILLIAM BEACH, Center for Data Analysis Director, Heritage Foundation: Thank you.

JEFFREY BROWN: Christine Owens, who is impacted by the actions or inaction, I guess, of Congress and how?

CHRISTINE OWENS: Well, by the end of this week, 1.7 million long-term unemployed workers will be affected, because their benefits will be cut off. They either will finish up state benefits and not be able to move to the federal program, or they will end up one tier of the federal benefits and not be able to move to the next tier.

So, 1.7 million workers by the end of this week, 2.5 million workers by the end of the first week that the Congress is back, and over three million by the end of the month.

JEFFREY BROWN: And you work with a lot of people in this situation.

What difference do the benefits make? What role does it play for them?

CHRISTINE OWENS: They play a huge role.

We know that, without unemployment benefits, people are far more likely to fall into poverty. They’re far more likely not to be able to make their mortgage payments. In fact, we know that the principal cause of foreclosure right now is unemployment.

They can’t consume. They can’t shop in their local stores. They can’t buy school supplies for their kids. It really has a huge impact on their standard of living and their ability just to stay afloat.

JEFFREY BROWN: Now, William Beach, the main argument against this in Congress has been that we can’t afford it now because of the budget deficit.

WILLIAM BEACH: Well, the deficits are rising rapidly, aren’t they? And we do have to be attune to that.

Let’s just lay a little groundwork. For those people who are newly unemployed, they still get 26 weeks of unemployment insurance. So, the system is going to be there for all the people who we heard in the report are coming on to the unemployment rolls. We’re not out of the woods yet of the economy by any means.

JEFFREY BROWN: Right. But we also heard that there is longer — people are unemployed for longer periods.

WILLIAM BEACH: Indeed. Indeed. And we have created a bit of a problem by extending unemployment beyond that 26 weeks.

We know that that changes the behavior of people who are unemployed. They don’t look for work as much as they otherwise would be. If you have got that 26th week looming ahead of you, all the academic studies show that you go out and you really begin to make an active job search.

Not as much job training is undertaken or education, so there are some incentives that are put in place that are rather perverse…

JEFFREY BROWN: You mean the benefits themselves act as a disincentive for people?

WILLIAM BEACH: After a point, they do. And that is what the overwhelming body of academic evidence actually shows.

And it can in fact cut the consumption expenditures of households, because a dollar on unemployment, about 55 cents of that is actually spent by the household. So if you take it too long beyond its emergency and safety net purposes, you can create just kind of the opposite result that you were hoping to.

JEFFREY BROWN: I’m sure you don’t buy this argument.

CHRISTINE OWENS: I absolutely don’t buy it. And, in fact, the recent academic studies show exactly the opposite. There’s very, very limited impact of unemployment benefits.

You know, we still have five officially unemployed workers searching, looking for every single job opening, a 5-1 ratio just among people who are officially unemployed, and that doesn’t count all those people who dropped out of the labor market this month, the 650,000 people.

The fact is, even people like Alan Greenspan have said that, when you have really high unemployment, as we have now had for a couple of years, it is, we have to maintain extended unemployment benefits for unemployed workers because there are no jobs.

We hear from workers who have applied for hundreds of jobs and have not been able to find anything.

JEFFREY BROWN: I mean, this, of course, is the — people, we hear — we just heard that there are people unemployed for longer terms.


JEFFREY BROWN: And we hear that there are — there just are not the jobs. So, why — how does the incentives play then?

WILLIAM BEACH: Well, the same incentives are there. You have to — in a very down economy like we have, and we had it in ’81 as well, government must do everything it can to stimulate the economy in an appropriate fashion.

We think that it has been inappropriately done. And with the growing debt, the amount of money which is taken out of the economy by the government, not made available for private sources, we may in fact be slowing the economy. The best thing we can do for all workers is to boost up the economic performance.

That said, this is a tough economy. And that means that many people will never return to the job that they lost. The best thing we could have done 26 weeks ago, actually, is to tell folks you need to get into all the programs that are available at the federal and state level, to learn new skills, because what you did before is probably not going to be there when you return to the job market.

JEFFREY BROWN: Let me ask you — let me — he just raised the stimulus question, because this is another of the economic debates in this whole thing, the extent to which unemployment benefits serve as a stimulus to the economy.

CHRISTINE OWENS: Well, they certainly do. In fact, Mark Zandi, who was Senator McCain’s economic adviser during the presidential campaign…

JEFFREY BROWN: And been on this program a lot.

CHRISTINE OWENS: … and has been on this show, has said that every dollar that we invest in unemployment benefits generates a $1.60 in economic output. Congressional Budget Office puts it as high as $1.90. So it is like a 2-1 return on the unemployment investment that we make.

JEFFREY BROWN: Because people use the money.

CHRISTINE OWENS: People have to spend the money. These are not folks who have other income. So, everything that they get in unemployment benefits, they spend. They’re not saving this money, putting it aside for retirement. They are surviving on it.

WILLIAM BEACH: Well, the benefits are 40 to — about 40 percent of your wages, OK, your ending wage. And when you spend that money in the economy, you are spending less of that than you were when you were a worker.

For short-term, it might help the economy be buoyed up a little bit, but other academic studies done by folks who are not at the Congressional Budget Office, a more or less political group, or Mark Zandi working for campaigns, have shown that it is about 55 cents on the dollar that comes back to the economy, and that it can actually reduce the work effort of the spouse that’s in the household.

So, the consumption side, it just doesn’t make any sense to me. Anyway, if it was a $1.46 for every dollar spent, why don’t we just all get unemployment compensation, and the economy would be boosted up? Those kinds of elasticities, as we call them in economics, are just too high. And Mark knows this.

JEFFREY BROWN: Of course, this sounds cold.


JEFFREY BROWN: I mean, you are making an economic argument, but you have got people suffering, so it’s like…

WILLIAM BEACH: Economists make their living out of sounding cold.

But what we — what I want to say is this. There is a safety net which is very important and it sits out there with Medicaid, food stamps. All these things, all these programs are still around. Unemployment insurance is essential to that.

So, there’s the side that I think we all can agree on. No one wants to see it go away. But there comes a point when you are giving someone a subsidy, where you have to say to them, this subsidy is going to end, and it’s actually maybe for their benefit that they know that that is going to — that that is going to end.

Now, if they don’t have work, if they don’t have a way of making their living, it’s still our duty to make sure that they don’t fall — fall down. But the government has also a duty to lay out a deadline and say you have got to now find the training to get back on your feet.

JEFFREY BROWN: And if unemployment remains high for a long time, a distinct possibility — we have heard it just again here — does your argument hold? I mean, can we afford to continue benefits?

CHRISTINE OWENS: We can’t afford not to continue benefits. There is a cutoff. The program doesn’t allow people to stay on longer than 99 weeks. And that’s a lot of weeks, but that’s because the economy is in such trouble.

We have lost so many jobs. You heard Catherine Mann earlier say that it would take 10 years at the current rate of job growth. Now, we all hope that job growth will accelerate and it won’t take that long. But the fact is, we are in a deep hole. It is not realistic to think that people can get jobs. They need these benefits, and the economy needs for them to have these benefits.

JEFFREY BROWN: All right, to be continued.

Christine Owens and William Beach, thank you both very much.