House Speaker Nancy Pelosi calls the latest extension of unemployment benefits a "stimulus" for the economy, but some economists see diminishing returns, and still more extensions ahead.
Congress is now poised to extend jobless benefits for an eighth time. And if past is prologue, unemployment rates will remain stubbornly high.
"In the coming months, the number of recipients who remain unemployed beyond 99 weeks could increase substantially," says Wall Street Journal blogger Phil Izzo. "If history is any guide, there will likely be at least one more call for an extension."
According to an analysis by Goldman Sachs economist Alec Phillips, unemployment benefits are extended an average of 23 months when the peak unemployment rate is hit.
"In the current downturn, the peak in the jobless rate -- 10.1 percent -- came in October, 2009, just eight months ago. To reach the average, unemployment benefits would need to be extended through September, 2011, which would require another act of Congress," Izzo writes.
Pelosi, D-San Francisco, calls benefits extensions "one of the biggest stimuli to our economy."
"It injects demand into the economy, and it is job-creating. It creates jobs faster than almost any other initiative you can name because it is money that is needed for families to survive, and it is spent," Pelosi said earlier this month.
"So it has a double benefit. It helps those who have lost their jobs, but it also is a job-creator."
Pelosi cited figures from the Congressional Budget Office to back up her claim, but the conservative Heritage Foundation has some countervailing data of its own, which suggest that repeated extensions of unemployment benefits reduce the need to search for new work.
According to Heritage research:
- Extending either the amount or the duration of unemployment benefits increases the length of time that workers remain unemployed.
- Roughly one-third of workers receiving unemployment benefits find work immediately once their benefits expire. This happens both when unemployment is high and when unemployment is low, said a report in Industrial and Labor Relations Review.
- Each 13-week extension of benefits increases the average length of time workers receiving benefits stay unemployed by approximately two weeks.
- Families respond to unemployment benefits by reducing other income. Research in the Journal of Labor Economics found that wives earnings fall by between 36 and 73 cents for each dollar of benefits married men receive.
Mark Zandi, chief economist for Moodys Analytics, bolstered Pelosi's contention by declaring, "No form of the fiscal stimulus has proved more effective during the past two years than emergency UI (unemployment insurance) benefits, providing a bang for the buck of 1.61 -- that is, for every $1 in UI benefits, GDP one year later is increased by an estimated $1.61."
Heritage countered that such findings "ignore the effect of UI benefits in raising unemployment and incorrectly assume that unemployed households spend every dollar of UI benefits they receive. Empirical studies contradict both of these assumptions.
"Heritage Foundation macroeconomic modeling accounting for both these factors shows that for each dollar spent extending UI benefits to 46 weeks, GDP expands in the first year by just $0.17.
"Almost any other use of resources would provide a greater short-term boost to the economy."
Unfortunately, the Obama administration and the Democratic-controlled Congress are only making matters worse, said Rep. Bill Posey, R-Rockledge.
The policies of this administration have resulted in consistently high unemployment, said Posey, a member of the House Financial Services Committee. They should abandon their job-killing, big-government agenda and focus on creating a more competitive business environment.
In the meantime, even the most fiscally conservative Republicans say they have no choice but to keep signing off on unemployment extensions.
"I strongly support using unspent stimulus dollars to extend unemployment benefits for Floridians who are hurting under the anti-growth policies of President Obama and Speaker Pelosi," said Rep. Tom Rooney, R-Tequesta.
"The stimulus has utterly failed to revive our economy or create jobs, so why not use the money thats left to provide needed unemployment benefits, instead of funding wasteful projects?
U.S. Senate candidate Marco Rubio said, "Rather than continue piling on debt that our children and grandchildren will suffer for, I would vote for extending unemployment benefits so long as its paid for, as Senate Republicans have been proposing and as President Obama himself supported last year.
"The fact that Congress cant cut wasteful spending and prioritize its proper functions, while relying on spending money we dont have, is yet another example of how broken Washington is," the Miami Republican said.
As of last month, the Labor Department reported that 4.3 million Americans had been out of work for more than 52 weeks.
Those bleak numbers provided a grandstand for Rep. Alan Grayson, D-Orlando, who took to the House floor Tuesday afternoon to accuse nay-saying Republicans of taking food out of the mouths of children.
"Why dont they just sell some stock? If theyre in really dire straits, maybe they could take some of their art collection and send it off to the auctioneer. And if theyre in deep, deep trouble, maybe the unemployed can sell one of their yachts?" Grayson said.
Seven Republicans and a TEA Party candidate have filed to run against the first-term congressman, whose district is considered a tossup this fall.
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Contact Kenric Ward at kward@sunshinestatenews.com or at (772) 801-5341.
