US Economy Losing Up to One Billion a Week After Jobless Benefits Cut

The US economy is losing up to a billion dollars a week because of the “fiscally irresponsible” decision to end long-term unemployment benefits, a Harvard economist said on Friday.

Professor Lawrence Katz based his assessment on official forecasts of the impact to the economy of 1.3 million jobless Americans losing benefits

The benefits, which apply to people who are unemployed for longer than six months, expired last week after a bipartisan budget deal on federal spending for the next two years failed to include a reauthorisation of the program.

Democrats have launched a sustained push to reintroduce the federal program, and a Senate vote on a bipartisan bill to restore the benefits for three months is expected early next week.

On Friday, Democrats in the House of Representatives released a state-by-state breakdown of Labor Department figures, showing the number of people who lost federal benefits when they expired on Saturday. The 1.3 million affected Americans are losing on average $305 per week. In total, Democrats said $400m had been “taken out of the pockets” of job seekers across the country.

“That would mean there is almost a billion dollars we are losing from the economy because of not extending unemployment insurance benefits,” Katz said in a conference call organised by House Democrats.

He later told the Guardian that the calculation was based on the “multiplier effect” of cancelling the benefits program, which had been forecast by the Congressional Budget Office (CBO). Applying the CBO’s estimated multiplier effect to the $400m per week being lost in benefits, Katz said, translated into a cost to the economy of between $600m and $1bn.

“It is actually fiscally irresponsible not to extend unemployment benefits,” he said. “The long-run cost to the taxpayers will be much higher from disconnecting people from the labour market.”

Economists argue that ending emergency unemployment insurance will have an adverse impact on the economy, mostly because people dependent upon the program tend to immediately spend most if not all of the benefits on goods and services.

Thomas Perez, the labor secretary, said on Friday that the Obama administration was planning to throw its full weight behind the push to restore the extension in unemployment benefits, which he described as "a critical lifeline".

Obama will host Americans who have lost their long-term unemployment benefits at the White House on Tuesday.

"When Congress first past this version of emergency unemployment compensation in 2008, and the president [George W Bush] signed the law, the unemployment rate was 5.6%, and the average duration of unemployment was 17.1 weeks. Today, the unemployment rate is 7%," Perez said. "The average duration of unemployment is now 36 weeks."
Betsey Stevenson, a member of the White House's council of economic advisers, said that while the broad economic outlook was positive, the long-term unemployment rate – currently 2.6% – has remained enduringly high. "To put that in perspective, [during] average or normal times we'd expect to see an unemployment rate that was below 1%." 

Steny Hoyer, the Democratic House minority whip, said the Senate would vote next week to expedite a bipartisan bill to reintroduce the benefits program for three months. If the bill passed, he hoped Republicans in the House would be open to negotiation.

“For Congress to let this program expire while our jobs recovery is still continuing, in my view, is reckless and irresponsible,” Hoyer said. “The long-term unemployed are facing one of the toughest job markets ever.”

The Senate bill is being brought by senators Jack Reed, a Democrat from Rhode Island, and Dean Heller, a Nevada Republican – the two states with the highest unemployment rates.

If Heller and all 55 senators in the Democratic caucus support a measure to bring the bill to an early vote, only four Republicans will be required to cross the aisle to reach the requisite 60 votes.

Congressional sources lobbying for passage of the legislation say they have identified seven Republicans they hope to convince to support the bill. They will be targeted, on Capitol Hill as well as in their home states, over the next week.

In an interview on Thursday, Reed told the Guardian he had been in discussion with some Republican senators over the holiday period and was “hopeful” the measure would pass. “They’re weighing it,” he said of his Republican counterparts. “That is my sense. They understand that they have constituents who worked hard, got laid off, and are still looking for work.”