Seven things you should know about the expiration of unemployment benefits

December 27, 2013

This Saturday, Dec. 28, an emergency unemployment insurance program will expire, immediately cutting off jobless benefits for 1.3 million workers who have been unemployed for longer than 26 weeks.

Here's our full primer on why this federal program is about to sunset and who will be affected. But it's also worth taking a step back and looking at the broader disaster of long-term unemployment in the United States. Here are seven reasons why this issue still very much matters:

1. Long-term unemployment is still at its highest level since World War II. There are currently about 4 million people who have been out of work for 27 weeks or longer. Although that's come down since the nadir of the Great Recession, the U.S. long-term unemployment rate is still the highest it's been since World War II:


The ranks of the long-term unemployed include all types of workers, according to a survey by the Urban Institute. There are young workers who have been out of work for more than 27 weeks. Married workers with kids. Older workers. College-educated workers. High-school dropouts. The problem touches nearly every demographic group you can think of.

2. Most of the long-term unemployed are having an extremely difficult time finding jobs. If you've been out of work for 27 weeks or longer, then you currently have just a 12 percent chance of finding a new job in a given month. And those odds go down the longer you're out of work:


Note that job prospects for the long-term unemployed are even worse today than they were in 2007. And the long-term unemployed have a much harder time finding jobs than those who have been out of work for just a few weeks.

Why is this? It's possible that the long-term unemployed are simply less employable. But there's also evidence that businesses actively discriminate against these workers. In one recent study, Rand Ghayad of the Boston Fed sent out a flurry of fictitious résumés to different employers, tweaking some of the characteristics of the applicants. He found that most employers won't even look at the résumés of the long-term unemployed, even if they're otherwise perfectly suitable.

One possible reason for this, as Michael Strain of the American Enterprise Institute points out, is that employers are leery of hiring the long-term unemployed because they assume there must be something wrong with these workers. Why else would they be out of work for so long? That may well be irrational. But there's little doubt that it's a huge obstacle for these workers.

3. Long-term unemployment takes an extreme toll on people's health and well-being. It's hard to overstate how much damage long-term unemployment can do to a human being. This recent study (pdf) by the Urban Institute offers a gruesome summary.

Workers who have been out of a job for longer than 27 weeks typically see their incomes fall by 40 percent. Even if they do find a new job, it tends to be lower-paying, and their long-term earning prospects are usually impaired. These workers tend to have worse health, higher rates of suicide and strained relationships with their families. They see a massive drop in self-esteem. Their children do worse in school and earn less over the long run.

(For some recent portraits of the long-term unemployed, see this piece by Annie Lowrey or this piece by Ylan Mui.)

4. The expiration of emergency benefits will take away a key source of income for millions of people. At the moment, many states still offer up to 63 or even 73 weeks of unemployment aid, and benefits average around $300 a week. That will all change Saturday. At that point, most states will go back to offering 26 weeks of jobless benefits at most, as they did before the recession.

That creates a problem: Right now, as a result of the downturn, the average job-hunter takes about 35 weeks to find a new job. So that means many jobless workers will see their benefits cut off before they find work again. All told, the Center on Budget and Policy Priorities expects some 4.9 million people to get kicked out of the program before they find a job in the next year:


5. There's scant evidence that the long-term unemployed will find it easier to get jobs if their benefits are cut off. For starters, there still aren't enough jobs to go around: There are currently about 2.9 unemployed workers for every job opening. That's worse than the ratio at any point during the 2001 recession.

Recently, JP Morgan's Michael Feroli surveyed the evidence and found that the long-term unemployed don't typically find jobs en masse when their benefits expire. Some workers who get cut off may take lower-paying jobs than they otherwise would. But many seem to give up looking and drop out of the labor force entirely. Indeed, there are some signs that this is happening in North Carolina, which recently slashed its state unemployment program.

Strain argues that this makes intuitive sense. "If you look at the long-term unemployed, a good chunk of them have children. A good chunk are married. A good chunk are college-educated or have had some college and in their prime earning years," he told me. "It strikes me as implausible that this person is engaged in a half-hearted job search."

6. Congress is doing very little else to help the long-term unemployed find work. It's worth noting, as Strain does, that simply extending jobless benefits once again won't solve the problem of long-term unemployment. Not even close.

Economists on both the left and the right who have looked at this problem tend to think the government needs to do a lot more to tackle long-term unemployment. That could include work-sharing programs. Or tax incentives for companies that hire the long-term jobless, as economist Dean Baker has suggested. Or relocation assistance. Or even, as AEI's Kevin Hassett has proposed, the government could hire people directly.

But Congress isn't doing any of these things. They're not even talking about any of these things. Right now, the main debate is between Democrats (and some Republicans) who want to extend the emergency unemployment insurance program for another year, at a cost of $25.1 billion, and Republicans who oppose it. (This fight will probably flare up in January.) But there's little legislative debate over larger, more comprehensive measures.

7. All this long-term unemployment is destroying the U.S. economy. Earlier this year, three economists at the Federal Reserve published an unsettling paper arguing that the long-term productive capacity of the U.S. economy has been greatly diminished. The reason? Long-term unemployment:


The economists' argument goes like this: There are now millions of Americans who lost their jobs in the recession, often through no fault of their own, and they've now been out of work for years. Those workers have seen their skills atrophy, their networks fade, and many of them have dropped out of the workforce entirely, discouraged by their inability to find work. That, in turn, has weakened the total potential of the U.S. economy.

This is an extremely worrisome situation. It means that long-term unemployment isn't just a temporary ailment that will heal itself as the economy keeps rebounding. It has left permanent scars. The U.S. economy will never be as productive as it could have been had we figured out how to get people back to work more quickly. And those scars are still getting deeper.

Related: Unemployment benefits for 1.3 million expire Saturday. Here’s why.

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Ezra Klein | December 27, 2013