Unemployment benefits for 2.1 million workers are set to expire early next year

November 7, 2013

More than 2 million out-of-work Americans will lose their unemployment benefits early next year unless Congress extends a jobless-aid program that's set to expire, a new report warns.

(Photo by Joe Raedle/Getty Images)
(Photo by Joe Raedle/Getty Images)

Here's the back story: The United States currently has about 4.1 million workers who have been out of a job for at least six months. About one-third of them are still scraping by with help from an unemployment-benefit program that Congress temporarily expanded in 2008 in response to the financial crisis and severe recession.

But that's all set to change soon. On Dec. 31, the federally funded Emergency Unemployment Compensation program is slated to expire. Once that happens, jobless aid programs will largely shrink to their pre-recession states, and millions of people will lose their unemployment benefits.

The report (pdf), from the National Employment Law Project, estimates that 1.3 million jobless workers will lose their benefits immediately at the start of 2014. Another 850,000 workers will exhaust their regular unemployment insurance in March and won't be able to take advantage of the expanded benefits:

Why are unemployment benefits vanishing?

In regular times, the states and federal government work together to fund up to 26 weeks of unemployment benefits. (The precise number varies from state to state — North Carolina only provides up to 19 weeks, Michigan 20 weeks.) When unemployment is especially high, states can receive partial funding to provide an additional 13 or 20 weeks of "extended benefits," depending on the situation.

Again, that's the normal system. Starting in 2008, after the financial crisis hit, Congress expanded this program significantly. First, the federal government promised to pick up the entire tab for those "extended benefits" and make it easier for states to receive this money. Second, Congress created the Emergency Unemployment Compensation program to provide additional aid to workers when their state benefits ran out.

This additional financing has shrunk somewhat from its peak — currently only about one-third of the long-term unemployed receive benefits, and the sequestration cuts have pared back benefit levels. Yet many states still offer up to 63 or even 73 weeks of unemployment aid:

uimap

Come January, however, that's all slated to end. At that point, most states will only offer the regular 26 weeks or less of unemployment insurance. And the NELP report thinks this will have two big effects:

-- 1.3 million of the long-term unemployed will immediately lose their emergency benefits come January.

-- Another 850,000 workers will exhaust their "normal"  unemployment benefits by March and not receive additional help.

The lapse in benefits is also expected to exert some drag on the economy. Michael Feroli, the chief economist of JP Morgan, estimates that the expiration of benefits will shave about 0.4 percentage points from first-quarter economic growth next year. The Economic Policy Institute recently estimate that the lapse will cut GDP by about 0.2 percent and cost 310,000 jobs.

Could Congress extend the unemployment program?

Congress certainly has the power to extend those emergency jobless benefits — lawmakers did exactly that last January, as part of the fiscal cliff deal. Extending the program through the end of 2014 would cost roughly $25.2 billion.

Is an extension worth it? Advocates of extending the program say it's still too early to allow unemployment insurance to shrink. For one, write Heidi Sheirholz and Lawrence Mishel in the recent Economic Policy Institute report, the job market still hasn't fully recovered.

There are still three times as many long-term unemployed workers — those who have have been out of work six months or more — than there were before the recession, they write. And many unemployed workers still can't find work. There are currently an estimated 2.9 unemployed workers for every job opening that appears.

So far, however, Congress has shown little interest in this issue. Last week, a stimulus-era expansion of the food stamp program was allowed to sunset as scheduled, cutting $5 billion in food aid for 47 million Americans, with little protest from lawmakers. So it's unclear whether the expiration of the unemployment program will attract much interest.

Further reading:

--Here's a helpful report from the Congressional Research Service looking at the expiration of the unemployment programs and various bills that have been floating around Congress that would either extend or alter the program in various ways.

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Neil Irwin · November 7, 2013