Published July 20, 2010
The extension of unemployment insurance benefits is expected to pass the Senate today. Despite President Obama's attack on Republicans for delaying the bill, it could easily have passed a month ago if Democrats hadn't added so many other unrelated radical measures to it -- from higher taxes to changes in the Medicare reimbursement formula.
The bill President Obama has been hammering Republicans over in the last couple of days has been puzzling since he already knew that he had enough Republican votes to overcome any filibuster and pass the extended benefits.
The problem, though, isn't that there is insufficient Republican support to pass it. The problem is that the bill will ultimately increase long term unemployment and it will reduce our GDP.
Ironically, if some of Obama's attacks are correct, Republicans can only be accused of trying to help Obama's presidency.
Suppose, as the president said on Monday, that Republicans really believe "that emergency relief somehow discourages people from looking for a job." If that were true, those Republicans who are opposing the added extension of benefits would believe that defeating it would lower the unemployment rate.
Wouldn't a lower unemployment rate before the November elections help the Democrats? Isn't that a sign of true bipartisanship?
It doesn't take much of a stretch to see that cutting extended unemployment benefits from at least 95 weeks to around 26 weeks will cause the unemployment rate to decline.
The length of these benefits is unprecedented, they are already over three times longer than the longest previous extension of benefits. The benefits are also larger, with health insurance also being subsidized for the first time.
This is almost like a drug addiction where the moment of truth keeps getting pushed off, with the unemployed having to accept a less desirable job than they held before keeps getting put off.
Yet, going for two-and-a-half years without a job does real damage to a worker's skills and productivity.People only get these unemployment benefits as long as they are unemployed.
Larger benefits encourage some people, who may be unhappy with their jobs, to become unemployed while they look for something better.
Others will be a little more reluctant to take a new job when they are offered it.
What is clear is that the percentage of the unemployed who are unemployed for more than six months has only increased during this recession after the length of the unemployment benefits was increased (see here).
Of course, every worker would like to hold out for a higher wage.
Unemployment benefits just let people hold out longer in hope of a better offer.
If you don't believe it, with the extended benefits temporarily eliminated over the July Fourth Congressional vacation, look at how the number of new filing for unemployment benefits has plummeted from 472,000 in the week ending June 26th to 429,000 in the week ending July 10th. That's the lowest rate in almost two years.
If unemployed Americans were solely motivated because they were having trouble finding a job, why didn't those eligible still file for benefits? You would think that they would apply for benefits whether or not it was 26 weeks long or 99 weeks.
My guess is that with the new extended benefits the number of new filings will immediately rise.
Unfortunately, despite President Obama's claims to the contrary, Republicans never really opposed extending unemployment insurance benefits.
Republicans have only asked that these benefits be paid for, and they've argued that in a $3.7 trillion budget there is surely $34 billion in there to cover the cost of these benefits.
Here is another simple prediction: as the unemployment benefits keep stretching out, the length of time that people are unemployed will go up.
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