Unemployment insurance is vanishing, even as jobs are scarce

at 03:22 PM ET, 05/11/2012

The job market in the United States is still in rough shape, yet states are already starting to pare back unemployment insurance. On Saturday, eight states — including California and Florida — will cut benefits for more than 200,000 workers.


(Ariana Lindquist - Bloomberg)
Here’s the backstory: Since the recession began, many states have been using federal aid to offer up to 99 weeks of unemployment insurance. In February, Congress agreed to reauthorize this program for one more year, but with less aid. States have since been cutting back the number of weeks they provide benefits. The National Law Employment Project has been tracking all the state cutbacks in this chart. All told, some 409,000 workers have lost benefits in 2012 — and most of them have been unemployed for longer than 70 weeks.

These days, fewer and fewer jobless workers are receiving government aid. According to NELP, two-thirds of all jobless workers qualified for state or federal unemployment insurance in 2010. Last year, that number shrunk to 54 percent. This year, it will go below 50 percent. If Congress lets all of its extended-unemployment programs lapse at the end of this year, says NELP, then “only a quarter of jobless Americans will be receiving unemployment insurance.”

Proponents of benefit cuts will sometimes argue that these workers will now be exceptionally motivated to go get hired now that they’ve been cut off. But how realistic is that? As economist Mark Thoma argues here, there are still 3.4 job seekers for every opening in the job market. That’s abnormally high. In fact, it’s still higher than at any point in the 2002 recession. And it means that many people answering job ads and sending in resumés are going to come up empty-handed, no matter how motivated they are.

What’s more, many of the workers that are now losing their benefits are part of the long-term unemployed — they’ve been out of work for at least one year or more. (About 3.9 million workers fall into this category.) Economists have compiled plenty of evidence that these workers have the hardest time finding new jobs, either because they’ve lost skills and job contacts since being laid off or because employers are leery of hiring people who have been out of work for so long.

“Will cutting unemployment benefits now, as many states are about to do, produce net benefits for the economy?” asks Thoma. “Probably not.” Instead, he notes, many of these workers could well “enter the underground economy, go on long-term disability, or pursue other less than desirable means of supporting themselves.”

 
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