Thursday, March 4, 2010

Longer Unemployment Benefits Causing Longer Unemployment

Anyone ticking off the reasons long-term joblessness stands at its highest levels in decades needs to do a little arithmetic.

As of mid-2008, unemployment benefits ran out after 26 weeks. Under two presidential administrations and a more-than-willing Congress, however, they kept growing and growing. First, they expanded by 20 weeks, then another 13, then 20 more and then 13 more. One additional week got added to the first 13 to make 14. Finally, another six got tacked on.

Add it up, and that's 99 weeks of unemployment benefits available to residents who qualify - many states have different rules, but may also run to 99 weeks at the maximum.

Given the rotten economy, it's easy to imagine why politicians keep pumping quarters into the jukebox. It takes time to get a job, so the long duration of benefits is not a sign of deliberate malingering. But those government checks come with an unwanted side effect, especially for workers at the low end of the economic food chain.

They go a long way toward explaining why 40 percent of jobless Americans have been out of work for at least 27 weeks, the highest level since the government started keeping score in the 1940s.

"Those programs subsidize unemployment," explained Robert Shimer, economics professor at the University of Chicago. "There could be good reasons to do it, but we should be clear on the cost. It has a pretty substantial impact."

He reckons that the current level of benefits probably accounts for 1 to 1.5 percentage points of the 9.7 percent national unemployment rate.

Republican Sen. Jim Bunning of Kentucky became Capitol Hill's biggest grinch this week for single-handedly opposing another benefit renewal, before caving in Tuesday evening.

It certainly sounds like his heart's too small. After all, the typical check in many states averages only $315 a week, maxing out at $535 for a family with children, hardly megabucks. And economists understand that extended unemployment checks, to some small degree, can give the jobless more time to find a better position than they might otherwise settle for.

The reasons behind today's long-term unemployment rate obviously go way beyond benefit extensions. The depth of the recession is probably the biggest factor, and economic changes ranging from the advance of technology to the aging of the work force contribute as well.

The lack of credit has hampered small businesses that otherwise would have led the way with cautious hiring, some say. And unlike previous recessions, the housing market crash has made it especially difficult to move on.

When the unemployment checks finally stop, a reality check will arrive, said Shimer. The recovery will take root as people move to greener pastures, different occupations and in some cases, lower-paying jobs. As Shimer observed, "That's a very hard thing to do."

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