After a hard-fought political battle, President Obama signed legislation this week restoring benefits to the long-term unemployed, aid that expired more than seven weeks ago. Under the extension, unemployed workers can receive up to 99 weeks of income assistance. Republicans have argued that the measure would add too much to the national debt. It's a discussion that gets bogged down in myths about how to assist the long-term unemployed, and the economy, at the same time.
Unemployment benefits make people less likely to find jobs.
1. It's true that if people receive unemployment benefits, they tend to take slightly longer to find a new job. That's the conclusion of a number of studies. When we're not experiencing a prolonged recession, it gives laid-off workers a little breathing room to find a job that matches their skills and experience. This is one of the goals of the unemployment insurance system, since the economy works best when people are in jobs that maximize their skills.
Unemployment insurance doesn't contribute to economic recovery.
2.Perhaps surprisingly, providing assistance to the unemployed is one of the most effective ways to create more jobs. The logic is straightforward: For laid-off workers, unemployment insurance benefits replace only part of their prior income, meaning these workers are very likely to have no choice but to spend those benefits on necessities such as food and rent.
Virtually every dollar spent by the government on unemployment insurance thus goes toward the eventual purchase of local goods and services, which boosts demand and saves jobs. This is why aid to long-term unemployed workers is consistently rated by the Congressional Budget Office as one of the most cost-effective forms of stimulus. Moody's Economic also confirmed that unemployment compensation and food stamps are more effective government programs than tax cuts.
We can't afford to do this right now.
3.The deficit will reach about 10 percent of GDP this year, and many have used the deficit issue to attempt to block a wide range of legislation, including the unemployment insurance extension. For example, Senate Minority Leader Mitch McConnell (R-Ky.) said on Tuesday: "What we do not support -- and we make no apologies for -- is borrowing tens of billions of dollars to pass this bill at a time when the national debt is spinning completely out of control."
Efforts to assist long-term unemployed workers and generate jobs will add slightly to the deficit, but not enough to have any significant effect on our budget shortfalls in the long term. The large deficit we have now is predominantly due to the severe downturn . . .
According to an estimate by a colleague of mine, the Recovery Act is likely responsible for less than about 1 to 2 percent of this country's long-run fiscal gap. Skimping on assistance to unemployed workers will not help with our long-term budget problems, but it could threaten the economic recovery.
The private sector can take care of unemployment on its own.
4.There is some good news from the labor market: It is adding jobs again. In the first six months of this year, the private sector gained nearly 100,000 jobs each month, on average.
The bad news is that between December 2007 and December 2009, the private sector shed 8.5 million jobs -- a staggering loss. We are not yet adding jobs fast enough to significantly undo that damage. The unemployment rate will probably hover near 10 percent for another year, and improvements after that are likely to be painfully slow.
The most recent forecasts by the Congressional Budget Office show unemployment averaging 6.3 percent in 2013. This may sound welcome compared with where we are now, but it is higher than the worst annual unemployment rate during the recession of the early 2000s, 6 percent. To get down to the pre-recession unemployment rate within five years, the labor market would have to add an average of roughly 280,000 jobs every single month between now and then.
The unemployment rate gives us a good sense of how many people are affected by the downturn.
5.The unemployment rate may be at 9.5 percent, but that doesn't come close to measuring the share of the workforce that is directly affected by the crisis in the labor market. The underemployment rate, for example, now stands at 16.5 percent. This measure includes not just people who are officially counted as unemployed, but also jobless people who have given up looking for work and people who are working part time but want full-time jobs.
source: http://www.washingtonpost.com/wp-dyn/content/article/2010/07/22/AR2010072202686.html
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