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November 13, 2012

For the Long-Term Unemployed, It Is A Fiscal Cliff

Posted in: Uncategorized

Liberals are working hard to more accurately name the fiscal cliff. They want to remove the sense of immediacy, the idea that the world would end on January 1 if Congress takes no action on expiring tax and spending policies. Democrats would benefit from a strategic standpoint from “going over the cliff” in many cases, so they want to ensure that people understand that Americans won’t immediately find themselves in a punishing recession on January 2.

However, there is a fiscal cliff intertwined with all the other expiring measures. That would be the extended unemployment insurance which expires at the end of the year. With no action, two million long-term unemployed would lose their benefits for Christmas.

The economy has improved slightly, but not to the point where people without a job can quickly find one. The average duration of unemployment remains over 40 weeks. If federal benefits aren’t extended, current and future unemployed Americans would see their benefits run out at 27 weeks, if that (it depends on the state). Right now, the jobless are eligible for up to 73 weeks of benefits. Republicans already forced a gradual shrinking of this safety net from 99 weeks to 73, as part of the payroll tax deal at the beginning of the year. Only half of the unemployed collect benefits at this point; letting federal benefits expire would cut off another quarter.

Maybe for the purposes of the sequester or the Bush tax cuts, “cliff” serves as a bad metaphor. The spending cuts or tax raises happen gradually. For the unemployed, “cliff” is very apt. Suddenly their benefit check stops arriving. Their visible means of support is gone. The unemployment check in many cases comprises the entirety of the household income. This could lead to mass poverty, foreclosure, homelessness. It won’t lead, as Republicans seem to think, to some newfound self-reliance, as long-term unemployed break free of the dependency state and through sheer will return to the workforce. With 3.6 million job openings and 12.3 million unemployed, the math equation just doesn’t add up to absorbing all these people cut off from their benefits back into the labor force.

What’s more, extended unemployment benefits, which for a year would cost around $39 billion, happens to be among the best forms of economic stimulus. The money goes immediately into the hands of people who will spend it. It has one of the highest economic multipliers – bang for the buck – out there.

Extended federal unemployment benefits have never been cut off before when the topline unemployment rate sits above 7.2%. We’re currently at 7.9%. I suppose you could see a trigger mechanism, where benefits get phased out once unemployment hits some lower number for a series of months.

But it’s likely that this is the first article you’ve read about the imminent expiration of unemployment benefits. With talk of cliff metaphors and the Bush-era tax cuts and the defense sequester dominating the scene, nobody in Washington seems to remember that 2 million Americans are counting on their actions in the next seven weeks. The only people who would see immediate, catastrophic effect from Congress’ failure to act are the desperately vulnerable long-term unemployed.

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