The benefit of unemployment benefits

Larry Summers, the Director of the National Economic Council wrote today on The Huffington Post:

The lapse in extended unemployment insurance benefits at the end of May has resulted in 2.5 million jobless Americans exhausting their assistance. If we do not reinstate benefits by the end of the month, this number will grow to 3.2 million. These losses are exacting an enormous human toll on families who count on these benefits as they continue to search for jobs.

As the president recently remarked: “Lasting unemployment takes a toll on families, takes a toll on marriages, takes a toll on children. It saps the vitality of communities, especially in places that have seen factories and other anchoring businesses shut their doors. And being unable to find work – being able to provide for your family – that doesn’t just affect your economic security, that affects your heart and your soul. It beats you up. It’s hard.”

It is also bad for the economy. But unemployment insurance puts money in the pockets of the families most likely to spend the money – which in turn expands the economy and creates jobs. The nonpartisanCongressional Budget Office has identified increased aid to the unemployed as one of the two most cost-effective policy options for increasing economic production and employment.

Missed unemployment insurance payments since May total over $10 billion – enough to have created 100,000 jobs. An abrupt and premature withdrawal of relief is not only something families cannot afford, it is something that the economy cannot afford at a time when the economy is at a critical juncture. The economy is finally creating jobs, but not nearly fast enough to close the 8 million-job gap opened by the recession.


Opposing extending unemployment benefits will do nothing to put people back to work. It will not result in an increased number of job openings to apply for. And it will not result in a higher level of employment. What it will do is create a more difficult situation for thousands of families hit hardest by the economic crisis and cut off a powerful channel for spurring economic growth.

Take a look at this graph (via Ezra Klein).

Do you see anything wrong with what this graph is showing? If you don’t, I will tell you; it is the fact that the yellow line representing the unemployed is at 14 million, while the number of job openings, which is represented by the green line, is between 2-4 million. I am not that great at math by that is a difference of about 10 million.  Ezra Klein writes:

“That giant gap consists of Americans who are unemployed, and couldn’t get a job even if they wanted to,” Indiviglio writes. “This emphasizes the need for Congress to extend unemployment benefits. It’s pretty clear that millions of Americans remain unemployed because the jobs aren’t there — not because they aren’t trying hard enough to find them. In fact, it’s not even close.

In a time of NO JOB OPENINGS, it only makes sense to give unemployment benefits so people have some type of an income, which in turn funnels money into the economy. Mark Zandi, an adviser to John McCain’s presidential campaign, estimated (pdf) that a dollar spent extending the Bush tax cuts (for the rich) would generate .32 cents of taxable economic activity, while a dollar spent on unemployment benefits would generate $1.61 of taxable economic activity (via Ezra Klein). Now is not the time to cut taxes, when unemployment benefits are way more beneficial for the economy.

Published in: on July 14, 2010 at 10:24 pm  Leave a Comment  
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