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Could You Live on $300 a Week? How About $0? The 99ers Lose Their Insurance Could You Live on $300 a Week? How About $0? The 99ers Lose Their Insurance
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Could You Live on $300 a Week? How About $0? The 99ers Lose Their Insurance

by Tim Fernholz

June 1, 2012

Across the country, long-term unemployment insurance is drying up. Some 200,000 unemployed Americans lost access to government benefits earlier this month, most in California. All told, at least 500,000 people will fall off the rolls this year.

This is going to be a problem.

When workers who are eligible for unemployment insurance lose their jobs, the government pays them an average of $300 a week for 26 weeks or until they get jobs. When economic times are tough, federal and state governments often extend unemployment insurance; keep in mind that the average length of unemployment in the United States today is 39 weeks.

During this recession, the federal government has extended unemployment benefits for 99 weeks, but that comes to an end this year as Republicans push for spending cuts and Democrats lose the will to keep fighting for extensions—after all, we’re starting to see more hiring, right?

To put this in perspective, about 40 percent of the unemployed, or 5 million people, are eligible for the long-term benefits; a large majority of those, about 3.9 million, have been without a job for more than a year. Meanwhile, there are only 4 million job openings in the country for 12.5 million people without jobs, so it’s not exactly a robust labor market.

Unemployment insurance helps this problem in two ways, besides preventing poverty: First, it gives people looking for work time to find jobs they are most suited for instead of forcing them to take the first work they get just to support themselves. This makes the overall economy more productive—you don’t want a Ph.D. behind the bar or a plumber mopping floors if you can avoid it.

It also helps keep the rest of the economy going: If all those unemployed people lose their income at once, there are a lot fewer customers for businesses and a lot fewer bills being paid, sending ripples of distress through the whole system. Combined with other potential problems on the economic horizon—chaos in Europe, the potential for massive cuts in spending and tax hikes at the end of the year, an unnecessary battle over the U.S. debt ceiling—cutting off support for so many people at once seems like an unforced error.

Unemployment benefits could become a problem if people start getting comfortable on the salary and feel like getting a job is less of an urgent priority. Economists have studied this question and generally find that unemployment insurance probably only adds a few tenths of a percent to unemployment rates; that makes sense when most recipients of unemployment benefits report being unable to afford the necessities—could you live on $300 a week?

As hundreds of thousands of workers are forced to subsist on even less in the coming months, they’ll likely turn to food stamps and other government programs to make up the difference; ideally, some will find jobs they are suited for as the economy continues its frustratingly slow expansion.

The long-term unemployed are in the most trouble, because they have the hardest time getting jobs: The longer workers are out of the workforce, the more their skills and professional network atrophy, and for older workers, the more likely it becomes that businesses will be reluctant to take on the costs of their health insurance—or will simply discriminate against them.

There’s a debate over whether our unemployment problem is cyclical (the result of temporary circumstances) or structural (caused by long-term problems in the system). Generally, advocates of the former position support efforts like unemployment insurance to alleviate the recession, while supporters of the latter view advocate keeping public investment to a minimum while clearing away public policies they view as counterproductive. 

While the evidence suggests the big problem today is still-insufficient demand for goods and services to get the economy operating at full capacity—a cyclical explanation—that’s not a very helpful answer for the millions of job seekers who’d like to do more than wait for the Federal Reserve and Congress to choose a coherent economic strategy. 

But this is something of a false debate. Even if the big problem is demand, one of the major structural issues—making sure workers have the right skills to compete in a global economy—is especially important for the long-term unemployed. If we’re unwilling to extend our current set of benefits, we should find ways to adapt, making wage insurance and education programs a bigger part of the picture to solve the unique problems of the long-term unemployed.

After all, unemployment isn’t just a problem for the unemployed. It’s a problem for anyone who wants to see a prosperous society.

Photo via (cc) flickr user OakleyOriginals

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