Renew Emergency Unemployment Compensation: 4 Facts about Unemployment Benefits

On December 28, Congress allowed the Emergency Unemployment Compensation (EUC) program to expire in the face of persistently high levels of unemployment. For the 1.3 million Americans who immediately lost their benefits, this was a harsh ending to the holiday season. And if Congress does not act to renew the EUC program in 2014, another 3.6 million jobseekers will be denied federal emergency benefits.¹

 Unemployment benefits are vital to preserving the American economy. Since 2008, unemployment insurance programs like EUC have kept 11.4 million people out of poverty during the deepest economic downturn since the Great Depression.² Failure to renew the program will create a further drag on our fragile economic recovery by weakening job growth and leaving unemployed workers out to dry. Below we outline four key reasons why Congress should renew the Emergency Unemployment Compensation program.

1. Unemployment benefits provide an important boost to the economy.

• Although the average beneficiary receives only about $300 a week in unemployment benefits, this money provides an important and immediate stimulus to the economy. Here’s why: lacking a steady source of income, unemployed workers typically use their benefits to cover basic living expenses, putting money back into economy soon after it is received. The purchase of goods—from groceries to gas—helps spur economic activity, create jobs, and generate tax revenue through sales and payroll taxes.³
• According to projections by the Department of Labor and the Council of Economic Advisors, the expiration of the EUC program will lead to 240,000 fewer jobs created in 2014.⁴ Job growth will slow in every state (see Table 1)The expiration of EUC benefits is also projected to lower overall economic growth. JP Morgan estimates that GDP growth could fall approximately 0.4 percentage points in the first quarter of 2014 thanks to a loss of $20-25 billion in annual consumer spending by EUC recipients..
• The expiration of EUC benefits is also projected to lower overall economic growth. JP Morgan estimates that GDP growth could fall approximately 0.4 percentage points in the first quarter of 2014 thanks to a loss of $20-25 billion in annual consumer spending by EUC recipients.⁵

2. Ending EUC benefits is not an effective way to get people back to work. Instead, it could force jobseekers out of the workforce entirely. 

• Critics of unemployment insurance argue that it encourages people to stay out of work longer. However, programs like EUC actually require jobseekers to keep searching for a job in order to qualify for the benefit.⁶ Unfortunately, because today’s labor market is still weak, evidence suggests that many of these workers will drop out of the labor force when their benefits run out.⁷  
• In July, North Carolina cut its unemployment benefits from 99 weeks down to 19.⁸ Since last year, the state’s labor force has contracted by over 95,000 people, with 39,000 of those losses occurring since July. ⁹  
• JP Morgan estimates that the lapse of the EUC program will lower the unemployment rate by 0.25 to 0.50 percentage points, primarily through reduced labor force participation.¹⁰ While lowering the unemployment rate is an important policy goal, ending EUC benefits won’t get people into jobs if the jobs simply aren’t there.

3. Failing to renew the EUC program would be unprecedented. The unemployment rate is still well above pre-legislation levels.

• When the EUC program was enacted, the unemployment rate stood at 5.6%. In November 2013, the unemployment rate was 7.0%, 25% higher than it was when the law was passed in June 2008.¹¹  
• The recovery has been characterized by extraordinarily high levels of long-term unemployment,^* topping out near 7 million people in 2010.¹² The last three times Congress let unemployment benefits expire, the long-term unemployment rate was at or below 1.3%. As of November 2013, the long-term unemployment rate was twice as high at 2.6%.¹³ That’s over four million people—nearly 40% of all unemployed workers—that have been out of work for six months or more.¹⁴

Long-term unemployment refers to persons who are unemployed for 27 weeks or longer.

4. Without the EUC program, millions of workers will exhaust their benefits before they can find work.

• In most states, unemployment insurance runs out after 26 weeks; in some states, it is as little as 18 weeks.¹⁵ As of November 2013, the average length of unemployment was 38 weeks long, just shy of last year’s historical high of 42 weeks.¹⁶ The EUC program provides an important lifeline for many Americans who are still struggling to find a job after 26 weeks. Over one million jobseekers have already lost benefits as of December 28. If Congress fails to renew the program, an additional 3.6 million out-of-work Americans will be denied unemployment benefits once their state benefits run out.¹⁷
• A diverse cross-section of unemployed middle class workers relies on EUC benefits. These beneficiaries live across the country, as every state except North Carolina participates in the program (see Table 1). Over 40% of new beneficiaries in 2012 had a household income between $30,000 and $75,000 before losing a job.¹⁸ In 2012, a quarter of recipients had a bachelor’s degree or higher and over half had completed at least some college. Finally, EUC benefits often support a family: 78% of recipients in 2012 lived in a household with at least one other adult, and nearly 40% lived in a household with children.¹⁹

Conclusion

With the economy improving, there will come a time when Congress should let the EUC program expire. This is not that time. For reasons of economic recovery, for reasons of economic reality, and for reasons of basic human compassion, Congress should renew the Emergency Unemployment Compensation program through 2014.

Table 1: Projected Number of People and Jobs Affected by the Expiration of the Emergency Unemployment Compensation Program

Source: Council of Economic Advisers and the Department of Labor.²⁰