CBO: Extending unemployment benefits could save 300,000 jobs next year

November 28, 2012

If you've read our fiscal cliff explainer, you'll know that a bunch of tax hikes and spending cuts are scheduled to kick in at the end of 2012. Right now, lawmakers are mainly focused on the big items here—the expiration of the Bush tax cuts and the sequester.


Vague graphic meant to convey the idea that unemployment benefits are expiring. (AP)

Yet there are a number of smaller changes scheduled for the end of the year that aren't getting nearly as much attention. For example, some 2 million Americans are set to lose their unemployment benefits in December, once a federal program to help the jobless expires. Another 1 million Americans could see their benefits disappear by April.

So does it make sense to extend this program, given that U.S. unemployment is still high at 7.9 percent? As it happens, the Congressional Budget Office just released a new report on this subject. CBO's conclusion: It would cost $30 billion to extend the program for another year. But doing so could save 300,000 jobs by the end of 2013, compared with what would happen under current law.

A bit of history: Congress expanded the federal unemployment insurance program in 2008 and 2009, as the number of jobless Americans soared during the recession. The programs are run in conjunction with the states and provide up to 99 weeks of jobless benefits. All told, the federal government has spent some $520 billion on unemployment insurance over the past five years:

The two programs that are soon set to shrink are the Emergency Unemployment Compensation program, which provides up to 47 weeks of additional benefits (depending on a state's jobless rate) and the Extended Benefits program, which provides another 20 weeks to certain eligible workers. 

According to CBO, Congress has a number of options here. It could fully extend both  programs for another year, at a cost of $30 billion. Or it could partially extend the Emergency Unemployment Compensation program for $14 billion. Or it could partially extend the Extended Benefits program for $4 billion.

The report notes that extending unemployment insurance is a particularly effective form of stimulus when the economy is still struggling. That's because jobless workers who receive benefits are extremely likely to spend the money right away. So, the CBO estimates, if Congress extends all the programs, GDP will likely be 0.2 points higher and employment will be 300,000 higher at the end of 2013 than if Congress does nothing at all.

Right now, however, Congress isn't giving this idea much attention. Rep. Sander Levin (D-Mich.) recently told my colleague Suzy Khimm that the expiration of unemployment benefits would be "a human cliff." He wants to see them extended. But Levin is still a relatively lonely voice on this subject.

Further reading:

—Everything you could possibly want to know about the fiscal cliff, in one FAQ.

—The full CBO report on unemployment insurance programs.

—It's worth noting that even if Congress does extend unemployment insurance, some states will continue to cut back on benefits, thanks to complicated eligibility rules. More than 500,000 Americans have already lost their benefits this year as a result. See this old post for a more detailed explanation. 

 

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Suzy Khimm · November 28, 2012