January 15, 2014
Despite economic growth over the past 12 months and declines in the unemployment rate, the share of the American population with jobs did not change in 2013 according to a New York Times analysis of the recent Bureau of Labor Statistics (BLS) data. The economy added about 182,000 jobs a month in 2013, or enough to keep pace with growth in the overall population. And while the national unemployment rate continues to decline as employers keep adding jobs, the share of the non-elderly, adult population with jobs is not improving. This is because the unemployment rate only counts individuals actively seeking employment, the statistic does not account for the share of the adult population that is without a job. For many long-term unemployed, the prospects of re-entering the workforce has slimmed over time, leading to a decline in the active job seeking population and thus declines in the unemployment rate.
This issue is particularly relevant for federal lawmakers who are currently debating the continuation of unemployment benefits for the long-term unemployed, which expired at the beginning of calendar 2014. There are two long-term federal unemployment benefit programs. The Emergency Unemployment Compensation (EUC) program which is a temporary, 100 percent federally funded emergency benefit program that was created in 2008 to counter the Great Recession’s impact on labor markets. The other is the Extended Benefits (EB) program, a permanent program generally jointly funded by the federal government and states. Under the American Recovery and Reinvestment Act of 2009 (ARRA), the federal government began funding 100 percent of EB on a temporary basis, and this 100 percent federal match was extended to December 31, 2013 by The American Taxpayer Relief Act of 2012 (ATRA).
Congress could still retroactively extend the EUC and the 100 percent federal funding of the EB program, but at the very least, the latter action is not expected. States are now responsible for the 50 percent match of the EB program. For quite some time, states have been aware that they would be responsible for their normal 50 percent funding responsibility beginning in January of 2014. That being said, in nearly all instances, benefits under the EB program must be triggered by a rising state unemployment rate. In effect, the labor market must be worsening in order for the EB program to be triggered. This is not the case; the unemployment rate is not rising in states, in part because the long-term unemployed have stopped actively looking for work and dropped out of the labor force entirely. Therefore the permanent long-term unemployment benefits program run jointly by the federal government and states is not being triggered even though structural unemployment remains high. This is why many members of Congress view the EUC program as an essential safety net worth keeping until the labor market improves.
Despite the perceived need of the EUC program, (the National Employment Law Project estimates that 1.7 million Americans will be impacted by February 1, 2014 due to the termination of EUC), the extension of long-term unemployment benefits is costly. The Congressional Budget Office (CBO) has scored a two year extension of the EUC program at $26 billion for fiscal 2014 and 2015. Without available spending offsets in the federal budget, an extension of the program is unlikely to garner enough support. The high cost of the EUC program also makes additional state spending for unemployment support difficult. General funds or other state funds are not likely available at amounts needed to backfill federal cuts, given the large size of the EUC program. The fiscal impact on states will most likely manifest through increased service demands tied to less public assistance and lower sales tax collections, since cash assistance is quickly recycled throughout the economy rather than saved. Congressional debates surrounding long-term unemployment benefits will likely continue as long as the unemployment problem remains structural and not cyclical.